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Key ESG Trends For 2022

Jake-Walko-1x1 — Foto cedidaJake Walko, Thornburg IM . Jake Walko

As demand increases for ESG investing, several key trends are emerging—from climate change to human rights. The global pandemic, in particular, has turned the spotlight on the interconnectedness of sustainability issues and financial market performance. In this Q&A, we ask Thornburg’s Director of ESG Investing & Global Investment Stewardship, Jake Walko, for his insights on ESG trends that will emerge or continue in 2022.

As sustainable investing has become relatively entrenched in Europe and is becoming more mainstream in the U.S., many asset managers have been actively integrating ESG considerations into their investment processes. There are many ways to do this. What is Thornburg’s approach?

Our philosophy centers first and foremost around appreciating the complexity of the world and the ESG issues that exist. As investors with the goal of supporting the transition to a more sustainable world, the most important thing is the ability to determine the materiality of ESG factors—in other words, teasing out material ESG factors that stand to significantly impact a company’s long-term performance. In contrast to this, there are salient ESG issues that may be anecdotally and morally important, such as human rights issues, but do not currently impact the financial performance of a company in a consistent or well understood way. So, the question then becomes: How does one determine materiality?

At Thornburg, we think the best approach is to first leverage the expertise of the Sustainability Accounting Standards Board (SASB) as a starting point to guide us toward the most material and actionable ESG factors. From there, we overlay our own internal analysis and research to develop a holistic ESG viewpoint on individual companies we’re interested in. Due to our commitment to the ESG space, we have a team of ESG specialists that work collaboratively and organically with our investment team. As partners, our portfolio managers, analysts, and ESG specialists discuss how we can invest in a more responsible manner while simultaneously delivering excess returns for our clients.

How big of a role do you think ESG factors, such as climate risk, generally play in determining a company’s financial performance?

Carbon emissions are likely one of the most universally material current ESG factors that can alter a company’s ESG profile. In an effort to rapidly cut emissions, many countries are turning toward policy tools, such as levying a carbon tax, in order to encourage companies to adapt and make meaningful changes to reduce their carbon footprint. While the U.S. may not be close to imposing a carbon tax, American companies from all sectors are facing pressures to reduce emissions. In this instance, the combination of tighter government regulations and increased penalties has transformed climate risk into a source of business risk for companies, which then translates into a level of investment risk for investors as well.

From a financial-performance perspective, we do not expect ESG factors to have an immediate influence on a company’s stock—any related drag on a company’s earnings or share price will be fairly incremental, occurring over an extended period of time. The exception may be such unpredictable idiosyncratic risks as petrochemical disasters, like a major oil spill, which can result in short-term abnormal losses for a company.

How useful are third-party ESG data and ratings, and do you use them as part of your process?

As interest grows in ESG criteria, investors increasingly need a way to access an objective assessment of a company’s ESG performance. While we believe ESG data can be useful in helping investors identify financially material ESG risks to a business, there’s no single data point that can inform us whether a company is a good or bad ESG citizen. Accordingly, a comprehensive ESG assessment needs to incorporate both quantitative and qualitative information about a company’s current and forward-looking ESG strategy and goals. Managers with strong commitment towards ESG investing excellence, like the one we have at Thornburg, will be better positioned to do this and can provide a richer picture of a company’s current and future ESG impact. While we leverage third-party ESG data as a starting point, we rely on our own internal research to determine our forward-looking ESG viewpoints on companies.

For example, some companies that we see as opportunities may not be obvious “good” ESG companies today, but they have the potential to be tremendously impactful in the future when it comes to moving along such ESG goals as mitigating climate risk. We believe that understanding how a company helps the transition to a more sustainable future is more important than its ESG score or label at a particular point in time.

Do you see any transformative technological innovations on the horizon? What are the key opportunities and risks to keep an eye on?

Financial markets have witnessed a general mindset shift from concern around managing ESG risks to a more opportunistic and return-driven approach: finding companies that will take on the role of creating value in this sustainability era. We think there are many potentially transformative innovations scattered across a variety of industries that have the potential to solve huge sustainability issues.

As an example, there is strong demand for a wide variety of clean-energy technologies, and these will be needed to decarbonize many parts of the economy. The electrification of cars is a popular technology that has gained a lot of traction over the years, although other promising developments include the use of hydrogen as a renewable energy source. Hydrogen, when produced sustainably, can be used as a high-efficiency fuel that has little to no environmental impact. And wind, solar, and even nuclear energy are all opportunities on the table that deserve close attention.

Thornburg is a global investment firm delivering on strategy for institutions, financial professionals and investors worldwide. The privately held firm, founded in 1982, is an active, high-conviction manager of fixed income, equities, multi-asset solutions and sustainable investments. With $49 billion in client assets ($47 billion AUM and $1.9 billion AUA as of December 31, 2021) the firm offers mutual funds, closed-end funds, institutional accounts, separate accounts for high-net-worth investors and UCITS funds for non-U.S. investors. Thornburg’s U.S. headquarters is in Santa Fe, New Mexico with offices in London, Hong Kong and Shanghai. For more information, please visit www.thornburg.com.

For more information, please visit www.thornburg.com

Xavier Pardo Lelo de Larrea Joins Morgan Stanley in Miami

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Captura de Pantalla 2022-02-18 a la(s) 19 — Xavier Pardo Y Lelo de Larrea, Executive Director de Morgan Stanley Copyright: LinkedIn. Foto cedida

Xavier Pardo Lelo de Larrea joins Morgan Stanley this Friday as Executive Director, according to BrokerCheck.

Pardo manages more than $300 million in client assets with about 40 high-net-worth and ultra-high-net-worth relationships, industry sources told to Funds Society.

He has more than 16 years of experience at Citi and was most recently Director of Wealth Management at the firm, according to his LinkedIn profile.

Pardo arrives to Morgan Stanley with a team of five Citi former advisors who work with clients in Mexico, Argentina, Chile, Ecuador and Central America.

The new team will review nearly a billion dollars in assets.

In recent weeks, several senior Citi officials have left the company after the firm announced its exit from the offshore Wealth Management business in Uruguay and Asia.

Michael Averett, Fernando Campoo and Alex Lago, also left the firm few days ago.

Amundi Creates the Amundi Institute to Bring Together its Research, Market Strategy and Asset Allocation Advisory Activities

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Blanqué Amundi — Foto cedidaPascal Blanqué, presidente de Amundi Institute y miembro del Comité Ejecutivo de Amundi.. Amundi crea la división Amundi Institute y reúne en ella sus actividades de análisis, estrategia de mercado y asesoramiento en asignación de activos

Amundi has announced the creation of the Amundi Institute, a new division to strengthen the advice, training and day-to-day dialogue to help their clients better understand their environment and the evolution of investment practices in order to define their asset allocation and help construct their portfolios. In this sense, the management company is responding to needs that it had been detecting for some time.

The Amundi Institute’s objective is to strengthen the advice, training and day-to-day dialogue on these subjects for all its clients – distributors, institutions and corporates – regardless of the assets that Amundi manages on their behalf, explained the firm in a press release. This new division brings together its research, market strategy and asset allocation advisory activities.

The Amundi Institute will also be responsible for conveying Amundi’s convictions and its investment and portfolio construction recommendations, thereby furthering its leadership in these areas. This new business line will continue to serve Amundi’s investment management teams and will contribute to strengthening their standards of excellence.

With an initial staff of around 60, the Amundi Institute will soon be strengthened to serve these new objectives. Pascal Blanqué has been appointed as Chairman and will supervise this new business line. He will be supported by Monica Defend, who will be Head of Amundi Institute.

“Inflation, environmental issues, geopolitical tensions… there are many structural regime changes underway. Investors across the board expect a deeper dialogue and sophisticated advice to build more robust portfolios”, said Blanqué.

Vincent Mortier will succeed Pascal as Amundi’s Group Chief Investment Officer. Mortier commented that the creation of the Amundi Institute will enhance the contribution of research to all of Amundi’s asset management activities so that they can “continue to create highperforming investment solutions over the long term, adapted to the specific needs of each client and taking into account all the parameters of an increasingly complex environment.”

Lastly, Matteo Germano, Head of Multi-Asset Investment, will be Deputy Chief Investment Officer.

Michael Averett Joins Bolton Global Capital as Head of Business Development

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Michael Averett, Head de Business Development y complex manager de Bolton Global Capital Copyright: LinkedIn. . Foto cedida

Bolton Global Capital has announced the hiring of Michael Averett as the Head of Business Development. He will also serve as a member of the firm’s Executive Committee and as the Complex Manager for Bolton’s Miami and Weston, Florida offices.

Throughout his 21-year career at Citibank, Averett has held multiple senior-level positions in the firm’s wealth management complex, most recently as Regional Director of Sales for the International Personal Bank (IPB) division, has highlighted Bolton in a press release. In this role, he led a team that managed $10 billion in client assets and generated annual revenues in excess of $100MM for Citi’s high-net-worth offices in Montevideo, San Juan and San Francisco.

Prior to that, Averett managed IPB’s Client Solutions team and served as IPB’s Sales Head for all of its U.S.-based offices.

“We are delighted to bring on board a professional with such broad knowledge and experience in the international wealth management business”, stated Ray Grenier, CEO.

Established in 1985, Bolton Global Capital is an independent FINRA member firm with an affiliated SEC registered investment advisor. The firm manages $12 billion in client assets for US based and international clients through 110 independent financial advisors operating from branch offices in the US, Latin America and Europe.

ESG in Practice Series: Stéphane Rüegg on Credit

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RUEGG-Stephane-DSC_0889-2100x1402-7a34cf1f-2f9d-4e5e-8009-cc9ba5fad3dd — Pixabay CC0 Public DomainStéphane Rüegg, Pictet Asset Management. Stéphane Rüegg, Pictet Asset Management

Credit expert Stéphane Rüegg at Pictet Asset Management discusses what’s on the mind of his clients, the nascent green bond market and his very personal view of responsible investing.

Why does investing sustainably matter to you?

My awareness came about in different ways. First of all, watching the Rio Summit as a teenager, I vividly remember Brazilian indigenous leader Chief Raoni talking about the preservation of the Amazon forest. Also, I am a history buff and it occurred to me that lots of battles in military history would have had very different outcomes with climate change. The French were victorious at Austerlitz because the lake was frozen and they fired cannonballs that broke the ice; that lake has now dried up. A harsh winter during the battle of Teruel in the Spanish Civil War saw temperatures drop to minus 20 – nowadays they climb to 10 degrees in January. One contributing factor to the French Revolution was the poor harvest of 1788 which caused food shortages and high prices. These examples abound. Finally, I have lived in Asia and there are very few places where you can drink tap water, except perhaps Japan and Singapore. People drink from plastic bottles, which are not recycled. These different thoughts have made me reflect about the environment.

Even within Europe, there are some clear cultural distinctions around ESG

What are clients asking about?

Up until a few years ago, governance was the main ESG factor that influenced investments, and the environment mattered less because of the misalignment that former Bank of England governor Mark Carney calls ‘the tragedy of the horizon’: investment managers are judged on their 3-year track record while the impact of climate change will only be apparent in the coming decades.

However, with extreme weather events there has been a welcome realization that we are in a climate emergency. It has become a higher priority in Europe; Asian investors are looking at these developments and asking a lot of questions. Overall, clients’ main concern is ultimately driven by regulation. In Europe, we are moving towards a shared green taxonomy, but we will have to see how investors use it in the long run. It should not just be about hitting a threshold; we also need data that allows to track the progress of a company over the long term.

New standards will be gradually rolled out in Europe but even within the region, there are some clear cultural distinctions around ESG. German clients do not like nuclear power while others, like the French, think it’s necessary to make the transition to clean energy. In Belgium, home to many large brewers, the green label does not exclude alcohol.

Often, awareness about climate is the result of an environmental disaster, like Fukushima in Japan. In the US, the BP oil spill in the Gulf of Mexico helped change attitudes among American investors. The increased frequency of hurricanes and a spell of intense cold in Texas at the beginning of the year have intensified concerns about the environment across the US.

What risks investors in green fixed income should be aware of?

If I told you, imagine a bond with a social objective that allows people with little money to enter the property market and to integrate into society better, would you invest? Well, imagine it’s 2008 and I have just repackaged subprimes to you as a way to help American society reduce its fractures. So you have to be careful not to be dazzled by the green.

It’s a nascent market that requires you to have some major principles to guide your investments, like the moral compass that guides your personal life. You need to analyse the instrument as much as the issuer and follow up closely to ensure the company delivers on its promise. We are spoiled at Pictet because as a rule, we have what we think is the best supplier for each aspect of E, S and G – at the end of the day you need the data to understand ESG.

A broad-brush approach to evaluating companies’ ESG performance does not work, it is crucial to understand the dynamics of each sector. The environment is key for mining companies, for example, but the social aspect is equally important, in terms of accidents and working with local communities. A case in point is mining company Vale in Brazil where a lethal dam disaster caused the company to lose its position as the world’s largest iron ore extractor and sparked a governance and safety review. The way a company sets prices, or it treats customers or suppliers is just as important as the environment.

Are green ETFs an easy option for fixed income investors?

Green bonds ETF allow investors to dip a toe in the water, but they simply replicate an index. Bond index managers only include issuers that meet their eligibility criteria, so depending on data availability bonds may not be eligible for inclusion for a few months after issuance. When a company doesn’t report properly, it can take months to exclude the bond from the index.

And then it comes down to whether you agree with the benchmark. Do you include green bonds from companies that pollute? Do you include a green bond from an airport operator? When you buy an ETF you leave these decisions to the index provider. We think these are very important conversations to have with our clients.

It would be wrong to think that green bonds are the only way to gain exposure to virtuous companies. Companies in the business of blood testing or those in the health sector do not necessarily issue green bonds yet their contributions to society are important. Some companies may be ‘green’ but do not issue green bonds, such as this US water technology company we have in the portfolio. We bought the bonds because we were interested in the strategy of the company. Then they issued a green bond. On the other hand, we’ve had the example of an energy company promoting its sustainability credentials, then buying a shale gas company when the US energy market collapsed.

Does ESG change the job of professional investors?

In our team we have always cultivated a long-term mindset. Technological change and regulation are key inputs in our process because they can create new risks and opportunities and trigger a mini credit cycle in a sector. So, when ESG regulation started to come into force, we were not taken by surprise.

We also always have had a very fundamental investment approach of asking ourselves “why is the company making this acquisition/changing its business model by launching new products – does it make sense?” We may be opportunistic from time to time, but our approach is that we lend money to a company; we’re not traders.

We also talk to companies about our concerns. You can challenge company management during the meetings that you have with them, you don’t necessarily need defined engagements. Ultimately, governance is very important. You can’t trust a company on its environmental commitments if it doesn’t have good governance.

It would be wrong to think that green bonds are the only way to gain exposure to virtuous companies

Is the new generation more ESG-conscious?

I am not of the opinion that millenials believe in ESG much more than others. I think that each generation has its own biases and its blind spots. In the time of my grandparents, the harmfulness of tobacco was not taken into account at all. Today’s young people don’t understand the link between their streaming habits and the exponential growth of carbon emissions. Our ancestors saved water, used up all leftovers. Today we are in a much more wasteful society. My children don’t recycle. They have a sincerity about them, but they have blind spots, like all generations!

To read more about investing sustainably at Pictet Asset Management, click here to access the Responsible investment report.

Information, opinions and estimates contained in this document reflect a judgment at the original date of publication and are subject to risks and uncertainties that could cause actual results to differ materially from those presented herein.

Important notes

This material is for distribution to professional investors only. However it is not intended for distribution to any person or entity who is a citizen or resident of any locality, state, country or other jurisdiction where such distribution, publication, or use would be contrary to law or regulation.

The information and data presented in this document are not to be considered as an offer or sollicitation to buy, sell or subscribe to any securities or financial instruments or services.

Information used in the preparation of this document is based upon sources believed to be reliable, but no representation or warranty is given as to the accuracy or completeness of those sources. Any opinion, estimate or forecast may be changed at any time without prior warning. Investors should read the prospectus or offering memorandum before investing in any Pictet managed funds. Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future. Past performance is not a guide to future performance. The value of investments and the income from them can fall as well as rise and is not guaranteed. You may not get back the amount originally invested.

This document has been issued in Switzerland by Pictet Asset Management SA and in the rest of the world by Pictet Asset Management (Europe) SA, and may not be reproduced or distributed, either in part or in full, without their prior authorisation.

For US investors, Shares sold in the United States or to US Persons will only be sold in private placements to accredited investors pursuant to exemptions from SEC registration under the Section 4(2) and Regulation D private placement exemptions under the 1933 Act and qualified clients as defined under the 1940 Act. The Shares of the Pictet funds have not been registered under the 1933 Act and may not, except in transactions which do not violate United States securities laws, be directly or indirectly offered or sold in the United States or to any US Person. The Management Fund Companies of the Pictet Group will not be registered under the 1940 Act.

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AMCS Group Promotes Álvaro Palenga to Sales Director in Miami

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Captura de Pantalla 2022-02-08 a la(s) 14 — Foto cedidaÁlvaro Palenga, Sales Director de AMCS. Foto cedida

AMCS Group has announced the promotion of Álvaro Palenga, CFA, to Sales Director and his relocation from Montevideo to Miami. He will be reporting to Andrés Munho, Co Founder and Managing Partner.

In a press release, the company has pointed out that Palenga is assuming the role “at an exciting time”, as the business is seeking to significantly grow the market presence of its three asset management partners, AXA Investment Managers, Jupiter Asset Management and Man Group, in the US Non-Resident channel.

In his new role, he will be focused on covering wirehouses, private banks and broker dealers in Miami and Texas, while providing additional support to the New York area market, which is currently serviced by Chris Stapleton, Co-founder and Managing Partner of AMCS.

“We are extremely excited with the promotion and relocation of Álvaro as our Miami-based Sales Director. He has made significant contributions to our business in a short period of time, and we’re confident his consultative, investment-centric approach will be well received by our North American clients”, commented Munho.

Reorganization of the team

The firm has also announced the hire of Santos Ballester Molina as Sales Associate, based in Montevideo. He will support the wider AMCS sales team across the entire Americas region, with a focus on the southern cone client group.

“Having Santos join us in Montevideo at a pivotal time for our business to be able to support the wider team’s efforts represents a key addition to our team, and we’re confident he is up for the task of adding value for our clients across the Americas. We all look forward to both of their contributions to our ambitious growth plans”, said Munho.

Ballester will report to Santiago Sacias, Managing Partner and Head of Southern Cone Sales, who is also based in Montevideo. He joins from Riva Darno Asset Management in Buenos Aires where he has worked since completing his bachelor’s in economics from the University of San Andrés.

As part of this reorganization of the AMCS sales team, Francisco Rubio has left the business “to pursue other opportunities”, the press release says. He leaves “with tremendous gratitude” from the firm for his significant efforts over the years”.

Wirehouse Advisors Increased Their Productivity Over the Past Year Despite Shrinking Headcount

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Captura de Pantalla 2022-02-08 a la(s) 13 — . Pexels

Despite shrinking headcount, the wirehouse channel boasts a more productive advisor base, averaging $198 million per advisor at an increase of 14.4% year-over-year. This compares to an average of $88.1 million across all channels, according to Cerulli Associate’s report U.S. Advisor Metrics 2021: Client Acquisition in the Digital Age.

As wirehouses prioritize productivity, other advisory channels are capturing marketshare. The wirehouse channel, which has now lost 6.2 percentage points in asset marketshare since 2010, is projected to cede an additional 6.5 percentage points of total asset marketshare by year-end 2025.

By 2025, Cerulli projects that 30.6% of the industry’s assets will be managed by advisors in the independent and hybrid registered investment advisor (RIA) channels. The national/regional broker/dealer (B/D) channel (15.2%) is already overtaking the wirehouse channel (14.9%) in headcount marketshare.

The report shows that wirehouses are focused on wealthier clients, technology enhancements, client acquisition, and equipping their advisors with robust specialized support services. “Wirehouses are playing to their strength and providing advisors with the tools they need to capture and grow wealth,” says Marina Shtyrkov, associate director.

As the most productive channel, wirehouses have designed internal resources, fully integrated workstations, and teams that include multiple specialists spanning global capabilities. “Outside of a few niche B/Ds, banks, and highly specialized RIAs and multi-family offices, this scale can be mimicked but rarely matched,” she adds.

Main challenges

Advisors most commonly identify new client acquisition (52%), compliance (40%), and managing technology (30%) as their practice’s primary challenges. Cerulli points out that wirehouses have leveraged their scale to minimize these productivity hurdles for their advisors and tailor the firm’s resources to address the needs of large practices working with affluent clientele.

As a result, mega teams -practices with $500 million or more in AUM- are most pronounced in the wirehouse channel, which accounts for 41% of the industry’s mega teams. “Advisors are frequently held back by competing priorities as they balance the daily needs of their clients and the operational aspects of their businesses. Instead of vying for headcount, wirehouses have concentrated on solving these organic growth challenges”, says Shtyrkov.

Firms looking to increase productivity should focus on winning greater walletshare, advisor teaming, and merger and acquisition opportunities. However, in Cerulli’s view, they cannot lose sight of the capital required to develop infrastructure to support these efforts, as well as to recruit and retain practices working upmarket.

GAM Partners with Liberty Street Advisors in the United States to Invest in Late-Stage Innovation Companies

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CEO GAM — Foto cedidaPeter Sanderson, CEO del Grupo GAM Investments.. GAM se asocia con Liberty Street Advisors en Estados Unidos para invertir en la última fase de firmas tecnológicas a través del private equity

GAM Investments has entered into a strategic partnership with the Liberty Street Advisors team specialized in investing in late stage companies in the United States. Its aim is to provide its clients access to these firms through private equity investments.

In a press release, the asset manager has revealed that they will invest in “leading late-stage privately-owned technology and innovation” companies with high growth potential. The team at Liberty Street is deeply experienced in private markets investing and has an extensive track record investing in this sector.

In partnership with Liberty Street, GAM plans to launch a capability which will leverage the expertise of Liberty Street’s private markets investment team. This capability will give clients the opportunity to gain exposure to a market which has historically been difficult for them to access.

The firm has highlighted that growth equity is a segment of the private equity asset class which sits between venture capital and traditional private equity and “is expanding at unprecedented levels, with disruptive technology-driven growth across multiple sectors and industries“. This growth has led to a proliferation of unicorns, with more than 900 venture capital backed companies currently valued at over USD 1 billion and many more on a similar trajectory.

In this sense, by investing in these types of late stage high-growth, innovation companies the Liberty Street team seeks to participate in their potential appreciation while they are under private ownership.

“We are delighted to partner with Liberty Street to provide our clients with access to leading privately-owned companies. The team at Liberty Street has deep, multi-decade investing experience, as well as established relationships within the venture eco-system, and is an ideal partner for us”, said Peter Sanderson, Group Chief Executive Officer at GAM Investments.

He also pointed out that an increasing number of their clients are seeking to diversify their portfolios by including longer-term private asset investment strategies. “In our view, privately-owned companies in their later-stage nonpublic funding rounds could offer investors strong long-term performance potential, while their historical downside resilience and lower volatility compared to public equities also make this asset class attractive for portfolio diversification”, he added.

Meanwhile, Kevin Moss, Managing Director at Liberty Street, commented that they are seeing companies stay private for longer, driven primarily by regulatory changes, ease of business model development in the private sphere and a larger pool of available private capital. “A significant portion of these companies’ value appreciation occurs prior to entry into the public markets, at mid or large cap size. We believe that late-stage, private growth companies can present an attractive balance of risk and return for investors, compared to early-stage venture investments and public equities”, he concluded.

Seven Megatrend Themes To Watch

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Megatrends are the powerful socio-economic, environmental and technological forces that shape our planet. The digitisation of the economy, the rapid expansion of cities and the depletion of the Earth’s natural resources are just some of the structural trends transforming the way countries are governed, companies are run and people live their lives. Pictet Asset Management explains about seven key themes across science, technology and sustainability which are helping shape our future over the coming year – and beyond

1. Focus on food security

The recent supply chain disruptions – and the resulting empty supermarket shelves – have put the spotlight on food security. Advanced agricultural technology and improved logistics are key to successfully feeding an ever-growing global population in a context of climate change.

For a start, there is an onus on producing more food locally, which has multiple benefits of more reliable supply, reduced waste and carbon footprint and improved traceability. It also reduces pressure on shrinking resources, such as freshwater supply and arable land. Indoor, vertical farms are a big growth area, offering the prospect of quality local food to areas where there is little space or challenging climate conditions. Vertical farming company Kalera, for example, is set to launch a new mega farm in Singapore this year, aiming to grow some 500,000 kg of leafy greens per annum as part of the island nation’s plans to provide for 30 per cent of its nutritional needs by 2030 (up from around 10 per cent currently).

Traditional farms are also embracing latest scientific advances, which have given us the power to tailor crops to the environment and to improve nutritional values. The use of blockchain, meanwhile, can help boost crop yields and streamline supply chains – as well as increasing transparency over where our food comes from. French retail giant Carrefour is one of the pioneers here, and aims to widen the use of blockchain to some 300 fresh products this year, tracking and tracing their travel from farms to stores.

There is also increased appetite for direct-to-consumer food services, and indeed almost any new generation food production and logistics model, which can shorten the complex global supply chains and reduce the risk of logistics issues, spoilage and contamination.

There is an onus on producing more food locally, which has multiple benefits of more reliable supply, reduced waste and carbon footprint and improved traceability.

2. Wood, re-imagined

Wood was one of the first materials mastered by mankind – it’s been used in construction for more than 10,000 years. Today, it’s getting a new lease of life thanks to its sustainability credentials. Local government in Paris, for example, has mandated that any buildings lower than eight stories built for the 2024 Olympics must be made entirely from timber. France as a whole, meanwhile, plans to mandate that from this year, all public buildings are made of at least 50 per cent timber or other natural materials. EU’s “Green Deal” and other sustainability-focused Covid recovery initiatives are likely to accelerate the shift; carbon taxes, meanwhile, may make timber more affordable.

Wood already has a lot to recommend it. It is a fire-safe material, which can be used to offer fire resistance of up to two hours. It also chars and burns at a slow and even pace, in contrast to some metals – such as steel – which can melt in a rapid and unpredictable manner once it reaches critical temperature, potentially leading to sudden structural collapses.

Technology, meanwhile, is improving on nature. Whereas building in wood was formerly confined to single family homes or small multi-family buildings, mid-rise and even high-rise buildings can now be almost entirely built from wood, using cross-laminated timber (CLT) – a wood panel material made by gluing together boards cut from a single log. Stable and strong, CLT is used for the pre-fabrication of massive wooden floors, and other structures that can be assembled much faster at the construction site, reducing costs, emissions, and as wood is lighter but has the same strength capabilities as other construction materials, but with a much lower impact on the environment.

The market for CLT is expected to expand to USD 2.3 billion globally by 2025, from USD 670 million in 2016 (1).

And wood’s potential is not limited to construction – it can also be used in packaging, textiles, food ingredients and hygiene products. Finally, besides its use as a material, wood is vital for carbon storage – a characteristic that is becoming increasingly valuable.

3. Battery boom

The world is shifting towards more sustainable sources of energy and power. That, in turn, means that we need more and more batteries for everything from powering electric vehicles to storing renewable electricity.

Electric vehicle penetration is forecast to reach 50 per cent globally (and as high as 79 per cent in Europe) by 2030(2). This many cars would require around 4,000 GWH of lithium batteries – 25 times more than needed today (3).

The large-scale battery storage market, meanwhile, is expected to increase 20-fold by 2030 according to a new analysis by Blomberg New Energy Finance. This is necessary to smooth out electricity production from a growing number of wind and solar plants around the world, whose expansion is in turn fuelled by ambitious climate commitments and supportive government policies in countries including US, China, India, Australia, Germany, UK and Japan.

Batteries are also needed to support a growing market for rooftop solar and storage solutions for residential and commercial properties.

With such strong expected demand, technology is focused on making batteries smaller, lighter and less expensive – as well as exploring the possibility of moving away form lithium to other materials, including magnesium or even oxygen. Such research could get fresh momentum over the coming year due to increased lithium prices.

4. Cyber risks

The pandemic has triggered a deeper review of working practices around the world, with many shifting to working remotely at least some of the time. That presents opportunities in the digital world, not least through increased investment in cloud services and the resulting need for every more data centres. However it also creates its own challenges – not least for cyber security.

As the migration to the cloud computing architecture accelerates, more and more businesses will adopt zero-trust security architectures to control user access to cloud servers. Over the coming year, there will be growth in the use of two-factor authentication and biometrics. VPNs, meanwhile, are likely to be phased out as cyber attacks expose their vulnerability. Industry analysts are also increasingly concerned about the growth of so-called “deepfakes”, which, with the power of machine learning can simulate bosses or work colleagues on video or audio calls.

5. Life in the metaverse

Spatial computing already brings us virtual home assistants and ride-hailing apps. It lets gamers summon ghouls into their living rooms, and shoppers try on clothes in digital changing rooms. Next, imagine working, shopping and socialising as avatars, in a rich, three-dimensional digital world that overlays our own. Welcome to the metaverse – a shared virtual environment where the physical and digital worlds coalesce across virtual and augmented reality (VR and AR), providing a sense of immediacy and immersion.

For years, clunky headsets, poor connectivity and a lack of decent content held back the rise of these technologies. Advances in 5G mobile broadband and smartphones are changing that. At the same time, the pandemic has made the public more open to online interaction. The concept is gaining particularly strong traction among GenZ – the generation born from late 1990s to early 2010s, which now represents a third of the global population.

Big tech companies are taking note. Microsoft has just unveiled plans to acquire Activation Blizzard, the maker of “Call of Duty” games, saying this will “play a key role in the development of metaverse platforms” , while Facebook’s parent company has rebranded as “Meta”. The global metaverse market could grow to around USD800 billion by the mid-2020s, according to Bloomberg research. That will involved hardware (such as VR glasses), software (for shopping, socialising, education and work), cloud capacity and infrastructure (better networks, with increased bandwidth and reduced latency).

6. Diagnosis, please

Diagnostics has also taken centre stage in the wake of the Covid-19 pandemic. Losing your sense of smell and taste were quickly identified as key signposts of the virus. Crucially, though, that insight did not come from doctors, epidemiologists or lab researchers. It came from computers, which collected and crunched data from millions of people via the ZOE app.

And that’s only the tip of the iceberg. The potential of AI in diagnostics goes far beyond pandemics. After looking at thousands of scans, machines have learned to identify breast cancer with accuracy comparable to that of experienced human radiologists. Such techniques could also open up the possibility of diagnosis in places where there are few or no doctors – particularly in remote locations and in developing countries.

This is crucial, as early diagnosis means that treatment can be started sooner, improving the patients’ prospects and reducing the risk of the disease spreading. Governments, faced with ageing populations and tight budgets, are increasingly seeing these benefits and investing accordingly. The UK, for example, has allocated GBP 248 million to the NHS public health service this year to invest in technology for diagnostic tests, checks and scans.

7. PFAS pollution

PFAS – a “magical” manufactured chemical is used in an array of household items and industrial products, from non-stick coated frying pans, microwave popcorn bags and dental floss, to stain- and water-resistant fabric, firefighting foams and wastewater treatment systems. Its popularity is due in part to its durability. But that is also its biggest flaw – and one to which an increasingly environmentally-sensitive world is waking up. PFAS never breaks down.

Governments are starting to crack down on the chemical. The onus will be on clearing up existing pollution (which can be done, for example, with activated carbon) as well as on developing greener alternatives to PFAS. The latter is particularly urgent in the EU, where around 200 PFAS will be banned starting form next year – regulation that manufacturers will have to be ready for. In the food packaging industry, for example, experiments are currently underway with bamboo, palm leaf and clay coatings.

Opinion written by Hans Peter Portner, Head of the Thematic Equities team and a Senior Investment Manager at Pictet Asset Management.

Discover more about Pictet Asset Management’s expertise in thematic investing.

Notes:

(1) Transparency Market Research

(2) UBS Q-Series, “EVs shifting into overdrive” (March 2021)

(3) Bloomberg New Energy Finance

Important notes

The information and data presented in this document are not to be considered as an offer or sollicitation to buy, sell or subscribe to any securities or financial instruments or services.

In Canada Pictet AM Inc is registered as Portfolio Manager authorized to conduct marketing activities on behalf of Pictet AM Ltd and Pictet AM SA.

China’s New Roar in the Year of the Tiger

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China’s roar has changed entering the year of the tiger. China will now emphasize quality over speed, not GDP growth at all costs.

2020 feels more like a decade ago than a year ago. The strong results provided by Chinese equities and bonds, the strong appreciation of the Renminbi, and the belief that a more balanced policy under President-elect Biden would occur; fueled their optimism going into 2021.

While KraneShares expected monetary and policy tightening going into 2021, they underestimated the intensity and reach of the tightening cycle.

Rapid developments were harder to predict, especially during a year of regulatory reconfiguration for one of China’s most lucrative sectors. Chinese internet companies were the targets of a broad regulatory campaign in China addressing anticompetitive behavior, cybersecurity risks, consumer data protection, and the financial risks posed by previously unregulated fintech companies. Even though 2021 was a challenging year for China, it was just a single year in the context of a much bigger opportunity.

2022 is an important year politically for China. China’s behemoth economy indeed suffers from imbalances with internal and external regulatory risks that could cost investors, especially in the short term. KraneShares believes the government is committed to dealing with these imbalances through reform and regulations. President Xi is expected to secure a third term during the Chinese Communist Party Congress (CCPC) assembly in the fall of 2022 and KraneShares is of the opinion that the government will seek to strike a positive tone in politics and business as the country continues its transition to high-quality growth. The US-China relations may see a moderate improvement in 2022 after their, albeit limited, progress over the past year. In absence of willingness to seek catastrophic confrontation, KraneShares believes the impact of US-China relations on markets will be neutral in 2022. The political importance of 2022 is also why they think China adopted a rapid-fire approach concerning internet regulations in 2021.

China’s policy darlings, which include health care, clean technology, 5G, and semiconductors, will continue to see support based on the most recent statement from the latest Central Economic Work Conference, which sets the government’s economic and financial policy framework each year. The takeaways from the Central Economic Work Conference, which was attended by senior political leaders in China, emphasized the stability, speed, and quality of growth in 2022. The conference acknowledged that China’s economy faces three pressures: demand contraction, supply shock, and expected weakness. The panel recommended that policy support, whether fiscal or monetary, be frontloaded in 2022. The recommendation explains the reserve requirement ratio (RRR) and loan prime rate (LPR) cuts in December, which KraneShares assumes will set the tone for a looser monetary policy in 2022.

In 2022, the country will continue to advance on many fronts, including climate, electric vehicles, health care, the internet, cloud, high-end manufacturing, and more. However, China’s leading industries, especially the internet sector, are undergoing an important shift from simply capturing ever more consumer spending to a focus on material innovations and the localization of import-reliant supply chains.

Consumer sentiment, the property sector, and China’s zero COVID policy are some of the risks facing China in 2022. The sporadic lockdowns in various Chinese cities and ports due to COVID-19 outbreaks hurt consumption and the feeling of security. Furthermore, real estate regulations aimed at setting a new normal in the property market hurt consumers’ sentiment. The recent earnings season in China confirmed consumers’ fatigue and household savings rates have surged since 2020.

Growth targets for 2022 will be more challenging to attain this year compared to last, especially as the favorable base effect recedes. Slowing GDP growth is to be expected, given the level of development that China has already achieved. KraneShares believes China will do whatever it takes to maintain the sentimental 5% level of GDP growth and we know skeptics will sound the alarm on the GDP level dipping below 5% for the first time, even though achieving 5% growth in a 16.8 trillion-dollar economy is like adding an economy the size of Germany every 3 to 4 years.

China’s roar may change its tone in 2022, but KraneShares thinks it will remain as loud as ever. As Joe Tsai, Alibaba’s co-founder and Executive Chairman put it during Alibaba’s investors day: “China is not going away.” The event’s tone was geared towards innovation and the future, without legacy industries hindering their progress. It represented what China is all about: innovation and progress.

KraneShares has always been constructive on China, especially in the long term. They encourage investors not to view China as a trade but rather as a long-term investment and encourage diversification across multiple industries to help reduce risks.

To find KraneShares’ in-depth outlook as well as investment opportunities for 2022 and beyond, please visit the following links:

UCITS

US (domestic market)