“Change? Change? Aren’t things bad enough already?”
— Lord Salisbury
It’s the economy.
Building redundancy and resilience necessarily means higher costs in the global economy. Higher costs likely result in two things: inflation and debt. Here, the question of the productivity of any investment — whether in critical infrastructure, process, or product — becomes critical. If investing in energy and tech resilience is deemed productive and accretive to potential economic growth and labor opportunities, the upward impact on prices and debt across countries, local governments, and companies can be more easily digested. But if this investment is seen as redundant and less efficient, without benefiting long-run activity, higher inflation and debt levels may be difficult to stomach.
Investment Opportunity: Rebalance portfolios to meet a new macroeconomic regime of moderate inflation and interest rates
Labor and social policy work with a long lag.
Innovation creates significant change for workers — and it is difficult to foresee exactly how, where, and by how much workers will be affected by innumerable sources of innovation. But history tells us this: Innovation will make some jobs redundant — even jobs requiring extensive education — while creating new ones as infrastructure and industries expand. The trick is in the handoff. Industry is often organized regionally, meaning that displacement in certain sectors can impact full communities that may not seamlessly fit into new roles. We’ve written in this piece about the political will required to make sizable and long-term transitions. When it comes to labor mobility, the cost of innovation comes not only in terms of training, but also in terms of physical and mental health.
Investment Opportunity: Healthcare
Know your spots.
Not all long-term trends are immediately investable. Here, time horizon is key: Strategies geared toward slow-simmering themes are likely to take years to see impact, and price action in the short term is likely to be dominated by the current economic cycle.
Investment Opportunity: Find the overlap of cyclical and structural trends
Question foundational assumptions.
This piece has illustrated that changes in the global economy will be accompanied by changes in process, product, and industry composition. Don’t lose sight of how those changes may impact the underlying facets of investment. For example, index composition may change, requiring investors to reassess and rebalance.
Investment Opportunity: Implement a regular (annual) assumptions-testing process
Look beyond the obvious beneficiaries.
Consider the invention of the automobile. Even knowing this technology could change global supply chains, an investor might not have guessed which car manufacturers would appear, grow, and excel over time. Investing in the “plumbing” for that invention — the rubber, tires, asphalt, materials, and energy that propel the automobile — provides a more diversified approach. Also consider the “less likely” winners of innovation: Offshore wind farms, for example, require specific types of ships to build and service them. Thinking broadly: as new capacity is created, think about who may supply that capacity.
Investment Opportunity: Digital, green energy, brown energy, and utility infrastructure via global listed infrastructure equity or municipal bonds
Tim Humphreys of Ausbil Investment Management joins host Lauren Goodwin to describe how a global mega trend towards de-globalization, or RE-globalization as our teams have written, can be leveraged in investment strategies today. Their conversation focuses on infrastructure – thinking beyond “bridges and tunnels” and including energy, digital infrastructure, artificial intelligence, and more.
Diversify.
There are winners and losers for every megatrend. Investors may benefit from diversification rather than placing bets with one horse, whatever that horse may be — one mining company, one country’s debt, one chip manufacturer, or one REIT.
Investment Opportunity: Thematic equity in areas like clean transport, innovation
Keep scanning the horizon.
We believe there is a great need for enhanced portfolio agility in the years ahead, to take advantage of increased opportunities (stemming from investment and innovation); to mitigate risk (potential for conflict may be higher as countries turn inward and compete for scarce resources); and to navigate the uncertain (including how governments will incentivize companies to work toward national goals). The process of re-globalization is a transition. It may not be that investors abandon the old and pile into the new, but rather consider the ways that this long-standing trend can change the very foundations of business today.
Investment Opportunity: Multi-faceted risk management approach (ESG), careful credit analysis, regular scanning of the structural investment landscap