Is your investment portfolio future-proofed for opportunities in the next 20 years?
It's time to take a broad view of the issues that are driving needs across the world
Long-term investing requires thinking about what the world may look like in 20 years from now and allocating capital to those areas of the economy that will grow in relevance.
To capture the prevalent investment themes of the next couple of decades requires a different approach, and access is not always easy. Most opportunities, especially in the nascent stages, are not yet listed and therefore only available through private markets.
However, the hard work can be well worth the effort. Many investors such as pension savers have an investment horizon that spans more than a decade, yet their investment strategy does not take into account the high potential long-term trends that will shape the world into which they retire.
Increasingly, we are seeing emerging global investment themes focused on solving global issues.
The United Nations’ Sustainable Development Goals are a set of 17 global goals that cover social and economic development issues. These include poverty, hunger, health, education, climate change, gender equality, water, sanitation, energy, urbanisation, the environment and social justice.
Unlike the UN’s Millennium Development Goals, which ended in 2015, the Sustainable Development Goals do not distinguish between “developed” and “developing” nations. This represents a significant shift in how investors should view the investment world, namely not as emerging or developed markets but as one world facing multiple correlating issues but from different sides.
Examples of emerging global trends include African urbanisation, where themes such as healthcare and hydropower are driving opportunities in multiple countries.
Namibia is aiming to implement universal health coverage and eliminate malaria in the country by 2020. Meanwhile, Kenya plans to tender for $600m-worth of new contracts for facilities and equipment, oxygen supply plant and information technology systems. All of these developments address key unmet needs that demonstrate investment potential.
Apart from infrastructure, healthcare investment opportunities in frontier markets such as Africa exist in financing medical equipment; cost-effective pharmaceutical production; supply-chain management; fit-for-purpose health insurance; and other new technologies. The International Finance Corporation, the private-sector arm of the World Bank, states in a report that health spending in sub-Saharan Africa is expected to double in the next 10 years. In developed markets, the ageing population is significantly increasing the demand for a variety of healthcare services, products and facilities.
Energy warrants a closer look as a theme of its own. Only about 7 percent of Africa’s enormous hydro-power potential has been harnessed. Investment opportunities exist at a broad level and also in subcomponents of the energy sector. Existing gaps include using biomass to generate heat and power simultaneously, known as biomass cogeneration, as well as large-scale wind power and urban waste-to-energy projects. On the smaller end of the scale but just as significant are small-scale renewables: improved cooking techniques, solar water heaters, wind pumps and small hydro.
Tied to the UN’s aim to end poverty by 2030 is a global theme of food security. The International Food Policy Research Institute estimates that ending world hunger is expected to cost an extra $11bn a year.
Developing efficient agriculture production that takes advantage of innovative technologies and practices is key. Hydroponics, the process of growing plants with added nutrients in bases other than soil, looks at how automation and other technologies are improving productivity and quality of produce. It simultaneously reduces negative environmental effects such as deforestation.
The advantage of hydroponic agriculture is that plants grow quicker and bigger than traditional soil farming because they absorb nutrients more directly. This makes it an ideal farming alternative for arid and semi-arid areas, as it demands less water while being suitable to more tropical areas.
In readying portfolios for the investment themes of the next 20 years, investors should not constrain their thinking to geography, asset classes or even instruments. They should take a broad view of the issues that are driving needs across the world, look at how those needs can be met, and then consider supporting industries and the investment opportunities those present.
Only then should investors evaluate the best mechanism to access different opportunities, such as analysing the merits of debt versus equity. And within each, considering public or private markets.
Many of these themes play out in Africa’s private markets since they represent nascent industries in economies where stock exchanges are relatively underdeveloped. Where investors are ill-equipped to undertake the research and analysis required to select the right opportunities, and to access them in a practical way, the help of an experienced manager makes a significant difference.
This article was paid for by Stanlib.