Long-term investment themes

 

What are long-term investment themes?

The Longer Term Investments (LTI) series contains thematic investment ideas based on long term structural developments. Secular trends such as population growth, aging, and increase urbanization create a variety of longer term investment opportunities. These investment opportunities are influenced by the interplay of technological advancement, resource scarcity, amd societal changes. Investors willing to invest over multiple business cycles can benefit from potential mispricings created by the typically shorter term focus of stock markets.

Technology, resource constraints and social pressures are all potentially disruptive forces for investors. They constitute, perhaps, "known unknowns". We know that there will be disruption, but we are not necessarily certain about the details of the disruption.

There are some identifiable trends that will run through this period of upheaval. These "known knowns", or relative certainties, can be a foundation for long-term investing.

There are three trends or "known knowns" that UBS believes will endure over the coming decade, alongside these disruptive forces. Two – the aging of populations and the increase in global population – are derived from basic demographic trends that are already in place. The third – urbanization in emerging markets – is a trend that is also already under way but which has further to run in our view. By identifying these foundations it is possible to build a framework to think about investment strategies that are robust over the course of an economic cycle (a seven- to ten-year period). The fact that this framework is built on trends with a great deal of certainty helps investors identify (broadly) areas of future growth. Of course, the details of such strategies will need to adapt to changing conditions produced by the disruptive trends. However the point of a long term investment framework is to identify where to focus attention in a world of change.

Population growth - Global population is expected to almost reach 10 billion inhabitants by 2050 from a current 7.3 billion. The vast majority of this population growth will occur in low and middle-income countries.

Aging - The number of people aged 60+ will exceed the number under 25 in developed countries by 2030.

Urbanization - Urban populations in emerging economies are forecast to climb by 78% in the years to 2050.

Read the full report by UBS Chief Investment Office