The five investment themes for 2023 focus on new income sources, strategies to embrace market volatility, responses to the energy crisis, long-term opportunities going beyond the inflation and rates peak, and the energy transition.
Five investment themes for 2023
Theme 1 – Seizing new income opportunities from TINA to TARA
After years of loose monetary and fiscal policies, bond yields fell to nearly 0% or even below zero and investors had no choice but to invest in equities to find reasonable returns. Those days are now past. The recent dramatic surge in bond yields and the widening of credit spreads have created some new interesting opportunities in the bond segment.
We recommend a cross-asset theme (bonds and equities):
- US government bonds for dollar investors and long-term UK government bonds.
- Investment Grade corporate bonds in the US and in the eurozone.
- Unconstrained bond funds.
- Equities, with a focus on solid companies that deliver growing dividends.
- Income-focused structured products.
Theme 2 – Embracing market volatility
The year 2022 will rank as one of the highest years in decades for volatility in global bond and foreign exchange markets given the uncertainty around interest rates and the question of when inflation would peak. In addition, global equities entered a bear market and are experiencing higher volatility amidst mounting fears about the extent of a potential recession.
This environment is creating enhanced opportunities for investing in:
- Cross-asset structured solutions.
- Global Macro and trend-following strategies.
- Gold that could shine again as inflation peaks.
- Higher quality companies with raising dividends.
Theme 3 – Investing in a new era
The COVID-19 pandemic, the ensuing economic stimulus and escalating geopolitical tensions have ushered in a new environment of high inflation, largely on the back of a shortage of cheap energy, sharply rising interest rates, and a reversal of globalisation in favour of nearshoring. These shifts are structural in nature and the new economic era require a completely different investing mind-set.
We see investment opportunities in:
- Reuse and recycling of goods and services via investment in circular economy leaders.
- Energy security (energy transportation and storage infrastructure, battery metals, renewable energy generation, hydrogen economy).
- Food security and water efficiency (more effective water irrigation and desalinisation, companies which combat food waste).
- Technology security: cybersecurity, semiconductors, satellites.
- Industrial automation.
Theme 4 – Looking through the inflation and rates peak
Long-term investors should look beyond the peak in inflation and policy rates to the investment opportunities that lower inflation and long-term rates can offer.
This theme focuses on Equities and Fixed Income. Spreads and yields on Investment Grade credit now offer attractive opportunities in:
- Quality stocks with strong cash flow and solid balance sheets which should allow companies to take advantage of easing input costs.
- Luxury brands which can easily raise their prices without lowering their sales volumes.
- Businesses that ramp up Capex both in digitalisation and automation in a bid to adapt to a tighteninglabour market, and in security to mitigate risks from cybercrime.
- Emerging market equities that could benefit from a weaker dollar in 2023.
Theme 5 – Accelerating energy efficiency
In the context of global warming, tensions with Russia and soaring fossil fuel prices, the race to find alternative solutions to curb energy spending and reduce greenhouse gas emissions is needed.
We prefer equity solutions for this theme (direct lines, funds and trackers) as well as private equity funds investing in energy infrastructure. This theme has several sub-themes, such as insulation, smart control systems for lighting and signalling, renewable energies and technologies that capture or recycle carbon dioxide.
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