Aging populations and slower economic growth are becoming part of the new normal, but there are a number of things the world will need in the years ahead — from infrastructure and technology, to health care and energy. For investors, this spells opportunity.
Sector-focused mutual funds are an easy and convenient way to tap into these longterm growth themes. You benefit from professional management and gain access to a diversified group of companies within the sector.
Years of underinvestment in critical areas, such as highways, ports, water treatment facilities and power grids, are catching up with countries around the world.
The McKinsey Global Institute estimates that the world needs to invest an average of $3.3 trillion annually just to support expected rates of population and economic growth over the next 15 years. (1) Emerging economies will account for about 60% of that need. (1) But opportunities closer to home are also presenting themselves. Infrastructure spending is a cornerstone of U.S. President Trump’s economic stimulus policy.
Infrastructure funds and your portfolio. Infrastructure funds provide exposure to real assets like toll roads, ports, and airports, along with inflation protection. Because they typically have a low correlation to traditional stock and bond markets, these funds also offer you another way to diversify your portfolio.
Innovation will be a key theme in today’s slow-growth world — and for years to come. Companies are looking to technology solutions — including mobile and cloud computing — to give them a competitive advantage and allow them to do more with less.
Today’s technology mutual funds are more than just hardware and software and they will continue to evolve. Over the next few decades, for instance, the “Internet of Things,” which promises to link the physical and digital worlds, could generate up to $11 trillion in economic value. (2)
Technology funds and your portfolio. The technology sector is very diverse and presents a number of opportunities for investors. As the tech sector continues to mature, these funds can provide some stability and income, but with the potential for tremendous growth over the longer term. Actively managed technology funds can help spot the investments that are poised to deliver.
The health care sector tends to perform well in both strong and challenging climates. Because the demand for health care products is relatively inelastic, health care funds offer some downside protection when the economy is slowing. On the other hand, health care is also a growth story, as aging populations in the developed world will become larger consumers of healthcare-related products. And as emerging market consumers become wealthier, they are expected to become large consumers of health products as well.
Health care funds and your portfolio. Well-diversified health care funds that include pharmaceuticals, biotechnology, managed care companies, and makers of medical equipment are poised to benefit over the longer term, whatever is happening in the economy.
Although the oil and gas sector has been hurt by low energy prices over the past few years, the International Energy Agency (IEA) says that long-term investment in energy is essential to meet growing demand and replace declining production.
Indeed, global energy demand is expected to rise over the next 25 years because of energy’s importance in all forms of transportation and petrochemicals. (3) Natural gas, wind, and solar are expected to be the winners, according to the IEA. (3)
Energy funds and your portfolio. Energy mutual funds are prone to more short-term volatility than more defensive areas such as health care. President Trump’s focus on pipelines that link Canada’s oil patch with the U.S. could be a boon to the oil and gas sector in the shorter term. Longer term, Canada is positioned to be a global leader in energy production.
As part of a well-diversified portfolio, sector funds provide you with an opportunity to capitalize on new growth opportunities. We can help you decide on the funds that are right for you.
1 McKinsey Global Institute, “Bridging global infrastructure gaps,” June 2016
2 McKinsey Global Institute, “Unlocking the potential of the Internet of Things,” June 2015
3 International Energy Agency World Energy Outlook 2016
Larry Kleinmintz, R.H.U., T.O.T., M.D.R.T.
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