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2018 Outlook – Investment Themes to Watch

GAM’s investment experts highlight what they believe will be the top investment themes for 2018 in their specialist fields.

Tuesday, January 09, 2018

Monetary normality

Monetary normality

Enzo Puntillo, head of fixed income/emerging markets fixed income

From a relative perspective, we believe the ECB is more likely to surprise the market than the Fed. Given the fact that the European cyclical economic expansion is less mature than in the US, this would support a convergence of the spread between German and US 10 year bond yields, meaning German Bunds are likely to underperform against US Treasuries. This is a key theme we will be playing in our portfolios in 2018.

strong banks

Strong banks

Anthony Smouha and Grégoire Mivelaz, co-fund managers of credit strategies (Atlanticomnium SA.)

One major theme for our team in 2018 is the European financial subordinated debt: on-going regulatory pressure is forcing banks and insurance companies to further build up and strengthen their equity buffers making these instruments stronger and safer. But it is important to note that one has to be very selective and manage the portfolio actively, as even some of the big, established companies can potentially fail in a strong sector as we saw last year with the example of Banco Popular.

automation

Automation and robotics

Ernst Glanzmann, portfolio manager for Japanese equities

One of the top themes for Japan in 2018 will be more work process improvement due to an ever tighter labour market. Companies will be eager to contain cost pressure as much as possible. One way of doing this is by further standardising processes through the application of IT-based solutions – automation, robotics, artificial intelligence, internet of things, etc. – as well as allowing people to work shorter days and weeks, something that is valued very highly.

chinese consumers

The Chinese consumers

Jian Shi Cortesi, portfolio manager for China and Asia equity strategies

Our top theme for 2018 remains Chinese consumers. One big trend in this and the next decade is China’s economic evolution towards a consumer-driven economy. In our China and Asian growth funds, we continue to focus on companies that benefit disproportionally from China’s economic evolution. These companies – which can be found mainly in the consumer, technology, healthcare and financial services sectors – continue to experience fast growth. In these rapidly growing industries, we are able to find attractively priced names through careful stock picking.

hurricane

The rise of the Millennials

Scilla Huang Sun, portfolio manager for luxury equities

The big theme we will be watching out for in 2018 is: what do Millennials (generation Y – born early 1980s to mid 1990s) really want? Millennials are increasingly becoming the main target group for most luxury companies. In combination with this trend we look at what luxury companies are doing in terms of digitalisation – something which will clearly have a tremendous impact on the industry as a whole. Which brands are adapting to the new reality in the most efficient way? Which ones are able to gain momentum and which ones might fade away altogether? In general, many luxury companies enjoy the extravagance of sitting on a big pile of cash – it will be interesting to observe what they do with it in order to stay relevant in a rapidly changing world.

solid growth

Solid growth

Thomas Funk, portfolio manager for Swiss equities

For 2018 we continue to be laser focused on growth. With growth we do not mean a focus on short-term quarterly numbers, but rather growth over medium-to-long term time horizons. We have a good number of companies in the portfolio that are investing now for future success. Being patient and following the long-term plan, while also being able to deliver on the short-term goals, is one of the key attributes of really well managed companies. And these are the exact companies we aim to find and invest in.

Eurozone demand recovery

Eurozone demand recovery

Niall Gallagher, investment director for European equities

We have two key investment themes underpinning our stock selection process. On the one hand, we have exposure to long-term secular growth trends; this means emerging market consumption growth, transfer from the physical to the online world, and disruption of whole industries through new technology. On the other hand, however, our medium-term focus – the one with more potential to drive returns in 2018 – is our positive and above consensus stance on European domestic demand. We are positioned to benefit from a Eurozone demand recovery through select key holdings in building and construction materials, consumer spending and business investment. We believe the risk / reward profile is highly skewed to the upside, with multi-year recovery potential.

Monetary normality

Enzo Puntillo, head of fixed income/emerging markets fixed income

Monetary normality

From a relative perspective, we believe the ECB is more likely to surprise the market than the Fed. Given the fact that the European cyclical economic expansion is less mature than in the US, this would support a convergence of the spread between German and US 10 year bond yields, meaning German Bunds are likely to underperform against US Treasuries. This is a key theme we will be playing in our portfolios in 2018.

Strong banks

Anthony Smouha and Grégoire Mivelaz, co-fund managers of credit strategies (Atlanticomnium SA.)

Strong banks

One major theme for our team in 2018 is the European financial subordinated debt: on-going regulatory pressure is forcing banks and insurance companies to further build up and strengthen their equity buffers making these instruments stronger and safer. But it is important to note that one has to be very selective and manage the portfolio actively, as even some of the big, established companies can potentially fail in a strong sector as we saw last year with the example of Banco Popular.

Automation and robotics

Ernst Glanzmann, portfolio manager for Japanese equities

Automation and robotics

One of the top themes for Japan in 2018 will be more work process improvement due to an ever tighter labour market. Companies will be eager to contain cost pressure as much as possible. One way of doing this is by further standardising processes through the application of IT-based solutions – automation, robotics, artificial intelligence, internet of things, etc. – as well as allowing people to work shorter days and weeks, something that is valued very highly.

The Chinese consumers

Jian Shi Cortesi, portfolio manager for China and Asia equity strategies

The Chinese consumers

Our top theme for 2018 remains Chinese consumers. One big trend in this and the next decade is China’s economic evolution towards a consumer-driven economy. In our China and Asian growth funds, we continue to focus on companies that benefit disproportionally from China’s economic evolution. These companies – which can be found mainly in the consumer, technology, healthcare and financial services sectors – continue to experience fast growth. In these rapidly growing industries, we are able to find attractively priced names through careful stock picking.

The rise of the Millennials

Scilla Huang Sun, portfolio manager for luxury equities

The rise of the Millennials

The big theme we will be watching out for in 2018 is: what do Millennials (generation Y – born early 1980s to mid 1990s) really want? Millennials are increasingly becoming the main target group for most luxury companies. In combination with this trend we look at what luxury companies are doing in terms of digitalisation – something which will clearly have a tremendous impact on the industry as a whole. Which brands are adapting to the new reality in the most efficient way? Which ones are able to gain momentum and which ones might fade away altogether? In general, many luxury companies enjoy the extravagance of sitting on a big pile of cash – it will be interesting to observe what they do with it in order to stay relevant in a rapidly changing world.

Solid growth

Thomas Funk, portfolio manager for Swiss equities

Solid growth

For 2018 we continue to be laser focused on growth. With growth we do not mean a focus on short-term quarterly numbers, but rather growth over medium-to-long term time horizons. We have a good number of companies in the portfolio that are investing now for future success. Being patient and following the long-term plan, while also being able to deliver on the short-term goals, is one of the key attributes of really well managed companies. And these are the exact companies we aim to find and invest in.

Eurozone demand recovery

Niall Gallagher, investment director for European equities

Eurozone demand recovery

We have two key investment themes underpinning our stock selection process. On the one hand, we have exposure to long-term secular growth trends; this means emerging market consumption growth, transfer from the physical to the online world, and disruption of whole industries through new technology. On the other hand, however, our medium-term focus – the one with more potential to drive returns in 2018 – is our positive and above consensus stance on European domestic demand. We are positioned to benefit from a Eurozone demand recovery through select key holdings in building and construction materials, consumer spending and business investment. We believe the risk / reward profile is highly skewed to the upside, with multi-year recovery potential.



Important legal information
The information in this document is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained in this document may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information. Past performance is no indicator for the current or future development. Allocations and holdings are subject to change.