A few obvious lessons stand out for investors who are now searching for the big investment themes of the 2020s. One is that big, multi-year bull markets tend to centre around positive ideas, such as exciting new technology or rising consumer wealth.
There are exceptions such as the 1970s, where inflation and supply shocks favoured energy, commodities and gold, but these are in the minority. Another is that a boom normally turns into a bubble and then a bust.
To profit from big trends, you need to find a compelling story, be willing to let your winners run, but avoid becoming a true believer who can’t sell when the end comes. So let’s consider a few contenders. The obvious one is artificial intelligence (AI), which clearly fits the pattern of previous themes. Valuations look rich, but we know that big trends can keep running for years despite high prices.
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Instead, the bearish case is that big tech is investing a vast amount and it’s not clear if the returns will justify this. We should be alert for signs that the cycle is coming to an end.
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Potential investment themes of the decade
After Covid, I thought healthcare might be the next big broad theme. This hasn’t happened, but the profitability of the GLP-1 agonists (Wegovy/Ozempic and Mounjaro/Zepbound), which may help tackle many conditions beyond obesity, might attract more interest in the sector. The difficulty is that opportunities for other breakthroughs abound, but competition is tough and there is more scrutiny of prices. It doesn’t feel like there is the rising tide to lift all boats that characterises a big theme. Investors need to find the successful innovators within the wider sector. Good for stock-picking, awkward for tracking an index.
Supplying the world’s energy needs while cutting carbon emissions will be a huge task. Profiting from the transition may be hard, because many ideas will be dead ends or not profitable (note Shell pausing construction of a huge biofuel plant in Rotterdam this week, or Ørsted writing down two wind projects in the US earlier this year).
I tend to think the obvious yet still not fully priced-in implication is the resources (eg, metals) that the electric economy will need. This makes a bullish case for some commodities. Many emerging markets look cheap enough to deliver good returns, but I wouldn’t bet on a broad mega-boom like the 2000s.
Today’s world is different: global tensions provide less support for upbeat stories of convergence and cooperation. The most likely emerging-market theme I can see is India. It’s already gone a long way, it’s not cheap and has plenty of room for error. But it also has unique potential for domestic catch-up growth on a vast scale.
Whether any of these will stand out as a driving force of the 2020s when we look back from 2030 is guesswork. It may well be something else that is barely on the radar yet. Nobody should go all-in on any of them. Still, all look like worthwhile areas for investors to spend some research time.
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