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May 2016

60 seconds with our Head of thematic investing

Hans Peter Portner provides insight into the Global Megatrend Selection portfolio he manages and shares his views on the market.

Taking a step back

The biggest surprise for me over the recent months was the rapid decline in investor sentiment vis-à-vis healthcare related stocks. Two main factors contributed to this deterioration. Risk premia in the sector were shooting up as Hillary Clinton has started to criticize the industry on high drug prices. Furthermore many tax-driven deals had to be shelved as the US government started to put limits on M&A activity with the only goal of optimizing taxes. Consequently health-related stocks rolled over.

Hit & miss

The positive surprise was the turnaround in fundamentals in some emerging market stocks. A good example of this is Sabesp, the water supplier of Sao Paolo. The risk premium for Brazilian stocks has fallen in the context of a very likely impeachment of Dilma Rousseff. On top of this, water consumption is increasing after the severe drought in 2015. The stock price is up 60% YTD in USD terms. Water represents the old economy, but this is a service that cannot be substituted. Without water, there is no life. But there are markets and services in the new economy we don't really need. Many business ideas that are listed on the stock exchange don't live up to their promises. One example is Twitter which is down 39% YTD in USD terms. The company has had difficulty monetising its large user base.

On my radar

We are experiencing a bottoming out of the oil price which is helping commodity related stocks and will improve the sentiment towards emerging markets where we find a lot of value. Therefore, we have started to increase exposure to emerging markets. 
In times of weak economic growth worldwide, the relative attractiveness of Global Megatrend Selection is most favorable. We invest in themes benefitting from several powerful megatrends. This supports superior long-term growth prospects irrespective of where we are in the economic cycle. Megatrends like the Focus on Healthcare or Demographic Developments tend to drive stable and above average growth rates and margins for companies that are exposed to them.

On a more personal note

© Pictet Asset Management 2016