As the challenges facing society increase, so does the pace and scale of the opportunity to solve them. Here we identify our top five themes for 2022.
As the degree of political support grows to meet the challenges of climate change and the realisation that a more comprehensive and co-ordinated approach is needed, the energy transition will be a core investment theme for the next decade and beyond.
The range of investment opportunities is broad, encompassing the move from fossil based to alternative energy generation, the electrification of transportation, heating and as much heavy industry as is plausible. In addition, more investment is needed in the wider adoption of bio-based transportation fuels, notably in the aviation industry. Carbon capture and storage needs to develop to reduce the effect of emissions from industries that cannot easily de-carbonise, such as cement and steel. Change in consumer habits in food and fashion to reduce the carbon emissions in both is also a source of investment opportunity. Finally, wider adoption of carbon land sinks via reforestation can further offset carbon emissions.
Electrification of transport will not happen effectively without adequate charging infrastructure. Improved energy efficiency in buildings is becoming a key driver of emissions reduction with Japanese-based Daikin being a global leader in the heating, ventilation and air conditioning market. More broadly, as we look to decrease our environmental footprints, we need to be able to better monitor and control increasing aspects of life, which will require improved infrastructure and greatly increased microchip and processor usage.
In addition, the pressure on supply chains and the negative impact on economic growth when they break down, as seen this year, will trigger a new wave of investment in logistics and associated infrastructure. The electrification and de-carbonisation of vehicles such as forklift trucks will also be a step to reducing the carbon footprint associated with the growth in logistics infrastructure.
Thematically, education is one of our more nascent themes, with the size of the overall market still to be determined. Many companies are competing to build sustainable and successful business models. Furthermore, as education is a crucial aspect of government policy in all countries, the sector is always vulnerable to regulatory action, as recently evidenced in China.
By contrast, online education in more developed markets, such as the US and the UK, took important strides forward as companies such as 2U, Coursera, Chegg and Pearson look to increase the availability of online courses and deepen their relationships with both education providers and students. Finally, as automation leads to disruption across industries, we see increased need for vocational education, re-training, ‘up-skilling’ and advice for the generation of displaced workers.
Health and wellbeing
The drive towards continuous, real-time monitoring and proactive management of general health, as well as more serious underlying health conditions, will improve the ability to meet healthcare needs, greatly enhance the efficiency of healthcare systems, resulting in better patient outcomes.
As with so many of these themes, the landscape has been fundamentally changed by recent events. Medical advances in vaccine technology and the use and acceptance of remote monitoring and administration have resulted from the pandemic. Similarly, virus testing companies, such as Qiagen, can redeploy the excess cash generated from increased Covid testing to improve technology and new platforms for more broad health testing, which should result in structurally higher growth.
Finally, new technologies in robotic surgery are improving the quality and range of elective procedures, which could drive growth in providers such as US-listed Stryker.
Food productivity and safety
Many of the challenges and opportunities mentioned above are reflected in our last theme for 2022: food productivity and safety. Supply chain efficiencies, animal and human health and wellbeing and carbon emissions are all important factors of improved food productivity and safety.
With a growing population, the issue is likely to become more extreme, as will the carbon footprint associated with food production. Precision agriculture provided by equipment manufacturers such as US listed Deere & Co. is an excellent starting point. GPS assisted autonomous driving, along with smart weed recognition software, are examples of products that will improve farm productivity. Improvements in animal health and breeding provided by the likes of US-listed Zoetis and the UK’s Genus will also enable lower cost, more accessible meat.
The likes of Dutch listed chemical company DSM, with their enzyme technology, are looking to reduce livestock methane emissions. Alternative sources of protein such as salmon, or plant-based products provide an interesting area of potential investment.