Even before the Covid-19 pandemic turned the global economy upside down, the need for huge investment in infrastructure around the world to tackle the environmental and social challenges facing society was apparent. For example, if countries are to meet demanding carbon emissions targets, then investment in transport and national grid infrastructure that can adapt to and accelerate the pace of electrification is needed rapidly.
In the wake of the coronavirus, this need is even more obvious than before. Our healthcare systems and medical researchers have achieved incredible feats under great pressure over the past year. But there is no doubt that lessons will be learned from this pandemic, and more investment in healthcare infrastructure will be required to protect against future outbreaks and other potential threats, such as antibiotic resistance.
Investing for a brighter future
The good news is that governments are more open than ever before to making sure that money is available where necessary to encourage and subsidise the development of such infrastructure. This is, in part, due to the economic damage wrought by lockdowns and the need to ensure a strong recovery involving the creation of plentiful high-quality jobs. For example, US president Joe Biden is keen to focus on green energy and decarbonisation as part of wider “stimulus” efforts. Meanwhile, the private sector is already forging ahead in many areas.
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We see this spending being channelled into six main areas: healthcare infrastructure; greener buildings; electric transportation; renewable energy; 5G telephony; and high-speed railways. On the healthcare front, for example, US medical device group Masimo, which specialises in pulse oximetry and noninvasive patient monitoring, has seen demand for its products boosted by the coronavirus crisis. This is likely to continue beyond the pandemic, as countries invest in healthcare to keep up with demand from ageing populations and to meet the need for increasingly personalised medical treatments and remote monitoring. Another likely beneficiary of these trends is next-generation sequencing specialist Illumina. These companies benefit from being market-leading names, operating in sectors with massive long-term growth prospects and high barriers to entry which are only reinforced by ongoing investments in research and development.
“Picks and shovels” plays on big themes
In certain sectors and companies, many of these themes overlap. When considering electric transportation, for example, investors might immediately think of electric car manufacturers or battery technology. The risk here for the investor lies in sifting the eventual winners from those whose brands will fail to impress or whose technology will fall by the wayside. However, other industries will also see a significant increase in long-term demand regardless of which electric car dominates, similarly to the way that providers of picks and shovels benefited from the California gold rush, irrespective of the fortunes of individual prospectors.
The semiconductor sector, which provides the chips which are used extensively in electronic circuitry, stands to benefit from almost every aspect of electrification. Electricity grids will have to become “smarter” in order to incorporate intermittent renewable energy sources, while autonomous or semi-autonomous vehicles represent a key step towards making transport infrastructure more efficient. The sector will be needed to help meet the massive increase in demand for sensors and processing technology to enable vehicles to communicate with one another and the environment, and grids to become more responsive to supply and demand. This is all part of the “internet of things”, which is effectively a physical version of the world wide web. In turn, this should be a healthy, long-term tailwind for a market-leading semiconductor group such as Taiwan Semiconductor.
Meanwhile, cloud computing and digital communication have become even more important as companies have come to rely more heavily on remote working. This is likely to continue even after Covid, implying ever-increasing demand for more sophisticated cybersecurity and data protection services, particularly as the adoption of 5G networks leads to a vast increase in the volumes of data being transmitted and analysed across the globe.
How we invest
These huge themes will take years to play out. But it is important that investors position themselves now to profit from these trends, in order to benefit from the power of compounding over time. The Martin Currie Global Portfolio Trust invests in a concentrated portfolio (with around 25 to 40 holdings) of the high-quality, market-leading companies that are best placed to benefit from these and other structural economic and societal shifts. These are global themes, and as such we invest globally, drawing on the best ideas from around the world, not just one geography or market. We have also been placing ESG (environmental, social and governance) issues at the core of our investment process for over ten years, for the simple reason that if companies are to survive and thrive in the long term, they cannot avoid taking into account the impact of their industries on the wider world. The trust is the only one in its sector (AIC Global Sector) to hold the highest possible Morningstar Sustainability Rating, while Martin Currie itself has been awarded the highest PRI (UN Principles for Responsible Investment) rating for four years in a row.
