Geopolitical unpredictability may be credited as being the biggest threat to market stability at the moment, as Brexit has caused sterling to sink and US President Trump's rhetoric of “fire and fury” towards North Korea earlier this month shook stock prices.
But wealth manager Sanlam has today revealed the six long-term economic themes which it will be keeping an eye on – and neither Trump nor Brexit feature.
“There are many businesses across the globe investing in real assets to fulfil the needs and requirements of bigger populations and more concentrated population densities,” said Mike Pinggera, manager of the Sanlam Four Multi-Strategy Fund.
While much attention is given to the numerous near-term uncertainties – such as Brexit, Trump and tapering – we prefer to focus our attention on these ‘pillars of a functioning economy’.
These are the six themes which Sanlam thinks are worth banking on in the coming years:
“A growing population and slowing housing construction has caused a significant imbalance of limited supply and increasing demand for housing,” said Pinggera.
As a result, more people are now renting and the private rented sector is creating new purpose-built rental homes to meet this challenge head-on. FTSE 250 company Grainger, a residential property business, is exposed to these themes, Sanlam added.
The attractiveness of higher education in the UK is another factor putting a strain on accommodation. "Despite high tuition fees, higher education applicants and acceptances reached a new record in 2016," said Pinggera.
The influx of international students adds to the undersupply of student accommodation, but there are businesses working to ease the demand. Sanlam named Empiric Student Property and HICL Infrastructure as two examples.
"A larger global population has led to continuous increases in energy consumption, but also heightened levels of pollution from energy sources such as coal, oil and natural gas," said Pinggera.
"Consequently, the energy landscape is evolving to one where renewables are beginning to play a significant role in the generation of electricity."
The UK is a leader in wind power and has a number of strong renewables businesses, according to Sanlam, including Greencoat UK Wind, Renewables Infrastructure Group, John Laing Environmental Assets and Brookfield.
Another downside to the rapidly accelerating population, especially the number of people who live in urban areas, is the availability of water to meet regional demand. Water shortages are expected to become even more pronounced due to the effects of climate change, Sanlam said, while agricultural and industrial demand will also increase.
But Pinggera added: "The pickup in urban growth has also resulted in increases in the generation of wastewater. This presents opportunities for treatment and recycling – an under-exploited resource. Desalination facilities are another modern solution to help tackle shortages."
HICL Infrastructure, 3i Infrastructure and Keppel Infrastructure are businesses looking into this area.
Transport and travel
As flight prices have come down, there has been a surge in global air traffic. The International Air Transport Association (IATA) forecasts demand for air travel will double again between now and 2030.
"In order to meet demand growth, airlines have increasingly employed leasing. Financing companies have been acquiring and leasing aircraft to facilitate airline fleet growth and capacity expansion," said Pinggera.
Again 3i Infrastructure, Amedeo and Brookfield are exposed to this trend.
Online retail has changed the face of shopping over the last several years – a shift which has only been emphasised by the number of deals in the digital payments sector recently.
"Retailers are faced with bigger strains on volumes and delivery expectations, driving businesses to pursue more warehouse space. Today, larger logistics facilities are being developed to provide the fundamental infrastructure to handle the continued expansion of e-commerce," Pinggera said. Tritax Big Box is one such company.