Recently, I wrote about three big investment themes that I am looking to invest in for 2021. In this article, I’ll talk about another two that I am looking at for the coming year and beyond.
Environmental, social, and corporate governance
2020 was a big year for the ESG or sustainable investing theme. Huge amounts of money flowed into stocks and funds that scored well across the three central factors for measuring the sustainability and societal impact of investing. The pandemic’s imminent threat seems to have sharpened focus on longer-term issues like climate change. Questions surrounding the fair treatment of workers, both before and after hiring are growing louder.
There are now requirements for fund managers to disclose how they incorporate ESG factors into their investment decisions. Also, individual companies are starting to report more on how they perform across the environmental, social, and corporate governance axis. ESG investing does appear to be coming of age.
One way to play the ESG trend might be to exclude companies that don’t score well. As examples, think of oil & gas companies that are not transitioning to a renewable future, or perhaps fast fashion companies that score poorly for sustainability. Trying to buy companies that do well on ESG measures is the more obvious path. However, defining what falls under the umbrella of ESG and how to score companies is tricky. Instead, I prefer to buy sustainable funds, that have the resources and expertise to develop a robust framework for selecting ethical investments, to play this trend. As examples, Royal London Sustainable leaders and Liontrust Sustainable Future Growth are two funds that have performed strongly over the last 10 years.
5G investment theme
The fifth-generation (5G) technology standard for broadband cellular networks means faster mobile (wireless) data speeds and greater capacity. Buying into telecommunications stocks might seem like the natural way to play the 5G investment theme. I am not so sure.
The most bandwidth-taxing activities of your average mobile network Internet connection user are streaming music and video. 4G is enough for the average user for now. The average user will likely transition to 5G-capable devices when they need to upgrade their mobile phone, rather than because they want a 5G device. Yet Telecoms companies have, and will continue to bid for 5G bandwidth in auctions. They have to do this to stay with the rest of the pack.
But, for some users now and an increasing number in the future, 5G does enable mobile online gaming, connected devices, crystal clear video conferencing from anywhere and augmented reality. I prefer to play the 5G trend by focusing on companies serving customers who want 5G right now.
IQE makes compound semiconductor wafers that end up in integrated circuits. It sees market growth opportunities in 5G handset applications and 5G infrastructure. Concurrent Technologies makes embedded computer products for use in many applications. Communications with and between embedded devices is something that 5G is beneficial for. Smart cities and homes, or the Internet of Things will rely on embedded devices and speedy communication between them. Spirent Communications helps businesses develop and test their 5G networks and 5G capable devices, among other things.
This is how I would look to play the 5G investment trend: looking for companies that benefit from incremental adoption of 5G technologies.
