Kepler's Heathcoat Amory: The next secular growth story
Big waves in thematic investment
Tech has beaten every other sector hands-down in both up and down markets, but nothing lasts forever. Where should investors look next?
How does one achieve diversification from technology without reducing the potential for growth? Sector dispersion this year has been startling.
However, what has transpired in the technology sector, has actually occurred in a relatively wide range of different businesses, which are loosely defined as technology.
An alternative moniker might be 'the ability of platform companies to distribute products globally with almost zero marginal cost', or perhaps as what James Anderson of Baillie Gifford describes as 'companies that derive increasing returns to scale'.
TEMIT pins 2020 underperformance on banking exposure
In his view, investors have been slow to recognise this phenomenon.
So where should one turn? Secular trends are defined as being neither seasonal or cyclical. Instead, they are a constant tailwind over time (often defined as five years or more), which should persist regardless of the economic path of the global economy.
The theory behind thematic investing in this way, is that companies like this should provide stronger returns than wider markets.
In our view the best themes are those wrapped around several other secular themes. This offers a broad spectrum of opportunities allowing a manager to balance the risk - as well as betting on the right race having not chosen the wrong horse.
We believe there are two broad secular growth themes that are likely to persist for the next decade at the very least.
Healthcare
Healthcare as a secular growth theme offers sparkling investment prospects. Aside from benefitting from innovation and R&D spend, healthcare also encompasses two mega-themes oft-quoted by many managers: that of ageing populations in the West; and the rise of the middle classes in emerging markets.
The managers of the BB Healthcare Trust take the view healthcare systems around the world are fundamentally broken and seek to identify companies that offer a new approach for governments, recognising that simply pumping more money into the existing system is not going to solve the 'care crisis'.
BMO Global Smaller Companies increases dividend for 50th consecutive year
They see the entire industry as their universe, including companies within industries such as pharmaceuticals, biotechnology, medical devices and equipment, and healthcare insurers to name but a few.
The managers have a concentrated, multi-cap approach. In our view, the trust is worthy of consideration for a differentiated high-growth exposure to a secular-growth story.
More on Investment Trusts
