4 Themes of Future Growth

We last talked about our forecasts in January, and then previously in 2020. We lean on our researchers at Athena Invest and Litman Gregory. We also lean on our investment managers. Among the best forward-thinkers are the men and women at Baron Funds, Artisan, Sands Capital and other “future growth” managers. To organize my thoughts, I looked back on our previous Periscope blogs about the pandemic. The research at McKinsey and Company proved to be timely, prescient and calm during the calamity.

Future Growth Investment Strategy

Future growth investment managers look at trends in the world and find companies that are best positioned to take advantage. They may choose companies who are not yet profitable but who the investment manager believes will be profitable. This investment strategy is one of 10 different strategies identified by Athena Invest. It was, by and large, the best performer in recent years. Technology firms make up the bulk of the companies in a future growth strategy.

Here are some themes that are changing the world, after the pandemic. They were identified by McKinsey and we wrote about them almost a year ago. Since then, the themes remain, and have strengthened.

Theme 1: State Power

McKinsey calls this “rethinking social contracts” and last year I called it “Massive Government.” In the past year, we have seen national governments all around the world enforce dramatic changes in the behavior of their citizens. And now the economy is roaring back and governments are deciding their role. How much healthcare do they provide? How much financial support for the lower income people? How much military power? How will all the other countries in the world respond to the increased competition from China? Will other governments behave like China? Investment managers, like future growth managers, are looking into all of these as opportunities. This power shift redefines the role of an individual and institution.

Theme 2: Changing Workers and Consumers

A year ago, with so many white-collar workers at home, we were afraid that we could never go back. Now, companies want their employees back and we are afraid they will never come back to the office. We are becoming comfortable with new technology and new ways of communication. This provides pressure on the technological infrastructure. Last year, we called it “the last mile” where the real people access the internet, electricity, and other utilities. Furthermore, the pandemic accelerated the purchase of goods online. The changes are apparent but the future is unclear. People love to get out and be active, love shopping. The consumption of healthcare and other services is also changing.

Theme 3: Mobilization

Everything is trending in the way of mobility. The rolling out of a 5g network across the USA delivers more power in a person’s palm than ever before. The future of this technology is unpredictable. Think about the past. The iPod changed the world with music, and created the world’s most valuable company. It gave Apple the money to invent the iPhone, which is now losing market share to other handheld devices. Clearly, the next 10 years could see a completely different company, or set of companies, create a new market for mobility. Consumers all around the world show an appetite to buy.

Theme 4: Regionalization

We grew up in a world that was trending towards globalization. China grew wealthy, quickly, as the entire world sourced so much of what we consume from China. Now, the pandemic exposed the rest of the world’s vulnerability. The “Just in Time” manufacturing process that brought down prices and increased efficiencies for countless industries has a kink in the chain. Buying local is not just a US populist slogan, it is a worldwide trend. China, itself, is becoming more isolated, self-dependent. This changes the way investment managers look at opportunities.

So, perhaps this will become an annual tradition. A mid-year check-in on the big themes driving the world and our investments. Let me know what you think!