Aegon has named life sciences, factory automation and electricity grid automation as three key sustainable investment themes that could offer investors a “compelling opportunity.”
Malcolm McPartlin, co-manager of Aegon Global Sustainable Equity Fund, said: “Today’s environment is rich in opportunity for sustainable investors. Beyond the ebb and flow of headline macro indicators and concentrated equity indices, we see a world still recovering from the dislocations caused by Covid, the Ukraine war and an aggressive rate hiking cycle.
“There are many desynchronised business cycles underway across a range of sectors, which represents a compelling opportunity to increase exposure to fundamentally attractive long-term themes when share prices are under short-term pressure. With the prospect of recovering fundamentals, as well as a central bank easing cycle underway, tailwinds are building for secular growth companies.”
McPartlin said life sciences present a structural growth industry, with advances in technology and knowledge driving increased R&D in modern therapeutics such as genomics, proteomics and synthetic biology. This, combined with aging populations and increasing prevalence of chronic disease, leads to an expected 13% compounded annual growth rate for the industry over the next decade. However, recent challenges such as over capacity and high inventories have led to an earnings downcycle for companies, presenting a great opportunity for investment in companies with strong long-term prospects when earnings are depressed and valuations attractive.
Additionally, Aegon said the next wave of automation innovation is underway, transforming factories with the Internet of Things enabling real time data analysis, predictive maintenance and increased production flexibility. The market for factory automation is expected to grow from $200 billion in 2024 to $304 billion in 2029. Despite this, spending has recently disappointed, says McPartlin, as customers delay capital projects due to economic and political uncertainties.
“We expect the new US administration policies, that are supportive of reshoring, to drive factory automation equipment spend, which has lagged behind the spend on construction of manufacturing facilities. We view the current downturn as an opportunity to invest in undervalued stocks ahead of its recovery,” said McPartlin.
Aegon also believes electricity grid modernisation poses an attractive opportunity for investors. The grid, which was built around 70 years ago, is struggling to meet the needs of a modern electricity system and the growing demands of power-hungry data centres as well as the reshoring of manufacturing capacity.
Furthermore, the grid is becoming increasingly vulnerable to rising occurrences of extreme weather events, cyberattacks and outages. McKinsey estimate global electricity transmission and distribution investment will grow between 4 and 8% per year from now until 2040 reaching between $0.6 to $1.2 trillion per annum.
“We believe this will be an enduring theme, regardless of which political party is in power,” added McPartlin.
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