Investment themes
Thematic investing has become more prevalent in recent years as the ability to recognise themes that should drive returns is important. The expectation is that over the coming years, trends in economics, politics, demographics and technology will drive specific industry outperformance. At Davy we identify a list of thematic investment ideas that we expect to add value over the short to medium term, two of which we have highlighted below. The information provided here is not investment advice, but if you would like to find out more about some of the investment options please contact your private client adviser who can consider the suitability of these investments in the context of your individual circumstances.
Artificial intelligence, automation and robotics
Since the introduction of mechanical production in the 17th century, the global economy has undergone a number of industrial revolutions. Artificial Intelligence (AI) is set to drive the next wave of innovation and has been dubbed the 4th industrial revolution. Advances in AI are driving major transformations in transportation, finance, healthcare and manufacturing. AI is a megatrend that looks set to grow at a much greater pace than the market for years to come. The technology offers solutions for global issues including low productivity and population growth. The demographic argument is clear, with the US alone expected to have an 18 million shortfall in workers by 2050. Source: Morgan Stanley.
In simple terms, AI is the simulation of human intelligence by machines. It is different from traditional software programmes as it extracts knowledge from data and can alter its behavior using that data without being specifically programmed. It is likely to be embedded in numerous applications within a few years. These ‘self-learning’ systems are impacting nearly every industry and giving rise to new business models. We are now at a pivotal point for the adoption of AI as the availability of data, computing power, the cloud and advances in algorithms are making it easier, cheaper and faster to implement.
A major deterioration in the global economic backdrop may see companies reduce their levels of capital expenditure in the short term which would negatively impact this investment.
Fundamental Value
The Value style of investing is applied by fund managers that seek to invest in companies they believe are undervalued by the market. Value investors look for opportunities where share prices represent a meaningful discount from their estimate of intrinsic value. Historically the value style of investing has performed better than the broader market over longer time periods. There are many views as to why the value style of investing has outperformed; one reason attributed is that behavioral biases of investors and their tendency to overreact to information cause share prices to diverge from fundamental value on the upside and on the downside. We believe that the Value theme is well positioned into the future providing exposure to a range of sectors that can prosper in the current macro environment of rising interest rates and higher inflation.
The Dodge & Cox Global Stock fund is our recommended instrument to capture exposure to Value. Dodge & Cox is a specialist, San Francisco based firm that only focuses on the Value style of investing. The fund is managed by an experienced team of portfolio managers that conduct their own research to build a portfolio of stocks where their assessment of fundamental value is at a discount to market price. The team at Dodge & Cox are disciplined investors and critically did not deviate from their Value focused approach throughout the extended period of value underperformance.
Investment call 1
■ ROBO® robotics and automation UCITS Index
Investment call 2
■ Dodge & Cox Global Stock fund
* Some of these investments are considered to be Packaged Retail and Insurance-based Investment Products (PRIIPS) for which a Key Information Document
(KID)/Key Investor Information Document (KIID) is available from your Private Client Adviser for your consideration prior to making a decision to invest.
Warning: Past performance is not a reliable guide to future performance. The value of investments may go down as well as up. Returns on investments may increase or decrease as a result of currency fluctuations. Forecasts are not a reliable indicator of future results.
J & E Davy Unlimited Company, trading as Davy Private Clients, is regulated by the Central Bank of Ireland. J & E Davy (UK) Limited, trading as Davy Private Clients UK, is authorised and regulated by the Financial Conduct Authority. Davy Group is a member of the Bank of Ireland Group. J & E Davy Unlimited Company, trading as Davy and Davy Private Clients, is regulated by the Central Bank of Ireland. Davy is a Davy Group company and also a member of the Bank of Ireland Group.