As hopes of resolution in the Middle East hangs in the balance, working out what the conflict means for your long-term savings can feel impossible. Investors watching with trepidation from the sidelines wonder whether now is a good time to head back in to profit from a potential market recovery. Others with their long-term savings in global stock markets are considering if they can stomach another round of terrifying volatility such as we’ve endured in recent weeks.
The swings have been enormous. The price of gold has swung by as much as 29 per cent in the past three months, the FTSE 100 index of the UK’s 100 largest listed companies by 10 per cent over the same period.
So what’s the answer?
Well, tempting as it is to take heed of the latest announcements from the US or Iran, experts suggest these may not have the biggest influence over our wealth over the long term at all. In fact, the best investors know not to pay attention to short-term movements. They understand that finding the enduring themes that will drive the planet for decades to come is the best way to grow wealth over time.
Alice Haine, personal finance analyst at Bestinvest, says: ‘It is all too easy to have your investment decisions clouded by current events or market volatility, but that will merely be a blip for those investing for the long-term.’
Instead of worrying about what has and hasn’t done well over the past week or month, look to the future: what are the trends that are changing the world? Whether it’s how Artificial Intelligence is reshaping the way we work or how an ageing population is driving up demand for medication and healthcare, some themes are undeniably here to stay.
Many countries are already on a drive to move to greener and renewable sources of energy such as solar
Perhaps the most foolproof way of investing through all market conditions and volatility – and the bedrock of most portfolios – is holding a large range of assets: bonds and shares in companies across the globe and in a range of sectors. That way, if one type of investment takes a hit, it shouldn’t have a catastrophic impact on your portfolio because you have others that have not been so badly hurt. Low-cost global tracker funds can be a great starting point as they give you access to thousands of companies across the world at a reasonable price. For some investors, this approach is sufficient on its own.
However, for those who wish to go one step further, choosing themes can be an interesting and lucrative way to invest, providing a tangible way to express your views on how the world is changing. However, because they are sometimes niche areas, it is best to only invest a small part of your portfolio in any given theme.
Because themes are often specialist areas, expert fund managers may be able to help – although they do not always outperform. They may have specific skills or qualifications – not to mention a team of analysts – to deploy to separate the winners and losers, and target the companies best placed to benefit over the long-term.
Once you have decided where to put your money, it can be a good idea to set up a regular plan that automatically invests a specified amount each month by direct debit.
This means you will keep putting money into the market even during a dip and enjoy the benefits of something called ‘pound-cost averaging’, where your money buys more of your chosen investment when it has fallen and is cheaper, giving you a better deal over time and a greater chance to benefit when the stock market recovers.
It also helps to take the emotion out of investing, removing the temptation to sell after a market fall or chase the latest crazes.
Darius McDermott, managing director at Fund Calibre, says: ‘Anchoring your investment portfolio around long-term themes can help you cut through short-term noise and ignore market fads.’
Here are five themes the experts think are here to stay.
The energy transition
The Middle East conflict has brought into sharp focus much of the world’s reliance on fossil fuels. Many countries are already on a drive to move to greener and renewable sources of energy, and this could gain further momentum after the latest oil price spike.
Alice Haine, personal finance analyst at Bestinvest, says: ‘It is all too easy to have your investment decisions clouded by current events’
Renewable energy investment funds such as Greencoat Wind are an obvious choice here. This fund, which has returned 13.5 per cent over five years, owns and operates onshore and offshore wind farms, generating around 6 per cent of the UK’s electricity.
However, Ben Kumar, head of investment strategy at the wealth manager 7IM, thinks nuclear power could see a resurgence. ‘European countries have realised that nuclear power has to be part of any future plan for energy independence,’ he says. ‘The likes of Germany, Serbia and Denmark are restarting their nuclear programmes, while others such as Poland are embarking on the process for the first time.’
He likes the Global X Uranium exchange-traded fund (ETF), which invests in around 50 companies in the industry across the US, Canada, South Korea and other countries. Its biggest holdings include the Canadian uranium miner Cameco and California-based Oklo, which designs nuclear reactors. The fund has returned 117 per cent over the past 12 months, and 25.4 per cent over five years.
The Asia powerhouse
The world’s largest continent is also home to some of the biggest and fastest-growing economies on the planet, and investors would do well to pay attention to them.
Darius McDermott, managing director at FundCalibre, says: ‘Asia is still one of the most attractive long-term regions, with stronger economic growth, better demographics and more resilient government balance sheets than the West.’
A young, growing population and rising middle-class consumer makes India a particular favourite in the region. Already the fifth largest economy in the world, its government has been investing in infrastructure and pushing reforms to boost manufacturing and make it easier to do business.
Kumar says: ‘India’s middle class is currently around 30 per cent of the population and will be 60 per cent in 20 years’ time. That’s a lot of growth, aspiration and spending power coming down the pipeline.’
As a major importer of oil, the Middle East conflict has been a blow to the country. But for those who believe in its long-term potential, that could mean now is a good time to buy. McDermott likes the Ashoka India Equity Trust, whose top holdings include telecoms firm Bharti Airtel and Eternal, the parent company of food delivery company Zomato and Hyperpure, which supplies ingredients to restaurants. The trust is down 7.6 per cent over the past year, but up 59.7 pc over five years.
For a more diversified option, the FSSA Asia Focus fund invests across the region, including in China, Taiwan, India and South Korea. Its top holdings include the chipmaker Taiwan Semiconductor, Samsung Electronics and the life insurance firm AIA Group. The fund is up 25.2 per cent over one year, and by 16.3 per cent over five years.
Asia, the world’s largest continent, is also home to some of the biggest and fastest-growing economies on the planet. A young, growing population and rising middle-class consumer makes India a particular favourite in the region
Rise of the machines
Artificial intelligence has dominated the investment world over the past year or two, and the trend is not going anywhere. As this industry matures, however, the winners and losers will start to emerge and this is where an expert fund manager can help. Like the dotcom boom of the late nineties, this is an area where you don’t want to be left holding the duds.
Ben Yearsley, co-founder of Fairview Investing, says: ‘Whether you believe in AI or not doesn’t matter, technological advancement continues at a frightening pace and innovation is rife. The next big thing will be coming soon and then the next big thing after that.’
He likes the Polar Capital Global Technology trust. It invests in the usual big names such as AI chipmaker Nvidia, Amazon and Google parent company Alphabet, as well as lesser-known businesses. These include Corning, which specialises in high-performance glass such as the Gorilla Glass that stops scratches and damage when you drop your phone or tablet, and Lumentum, which makes components used in cloud computing as well as AI data centres. The fund is up 151 per cent over five years.
Dzmitry Lipski, head of funds research at investment platform Interactive Investor, likes the Landseer Global Artificial Intelligence funds, which seeks out companies developing or applying AI technologies. As well as familiar names in the space, it invests in the likes of Shenzhen Inovance Technology, which makes components for robotics and smart elevators, and GE Vernova, which generates about a quarter of the world’s electricity. The fund is up 57per cent over five years.
An ageing population
There has never been greater demand for healthcare across the globe. An ageing population in many developed countries means a growing number of people need more treatments and medications, and for longer. Data from the Office for National Statistics shows that the average life expectancy for a female born in the UK in 2023 is 90, and for men it’s 86.7.
The growing middle class in emerging countries is also stoking demand, says Yearsley, as they can increasingly afford better healthcare.
The UK government last year pledged to increase defence spending to 2.5 per cent of GDP by 2027
To tap into this trend, he suggests the International Biotechnology Trust, which invests in firms developing products and treatments for cancer and rare diseases. Its biggest holdings include the oncology company Novocure and the endocrinology specialist Crinetics Pharmaceuticals. It is up 98.9 per cent over the past year, and by 65 per cent over five years.
Insurance companies are also likely to benefit from this boom as more people take out private medical insurance and life insurance policies. Consider stocks such as Prudential, which is now largely focused on Asia and Africa, says Richard Hunter, head of markets at Interactive Investor.
By 2033 it is expected that consumers in these two continents – which have a combined population of about 4 billion – will spend an extra $1 trillion a year on insurance premiums than they currently do. Prudential shares are up a massive 52.7 per cent over the past year at £11.12.
Defence spending
Even before events in the Middle East, many governments across the globe had vowed to increase their spending on defence and the recent conflict is only likely to see them double down on this promise.
The UK government last year pledged to increase defence spending to 2.5 per cent of GDP by 2027, and to 3 per cent within the current parliament. Spending is set to rise from £60billion to £73.5billion a year by 2028/2029.
‘Increased NATO spending and geopolitical tensions are driving demand, not just this year but over the coming decade,’ says Michael Field, chief equity strategist at Morningstar.
Companies set to benefit from this include BAE Systems, one of the largest defence contractors in the world, and Rheinmetall, which specialises in armoured vehicles and ammunition.
The HanETF Future of Defence ETF aims to tap into this trend by investing in around 60 companies involved in various parts of the industry. Its holdings include the aircraft equipment maker Safran and the military aircraft manufacturer Lockheed Martin as well as cybersecurity firm Crowdstrike. The fund has returned 33 per cent over the past year, and 144 per cent it launched in July 2023.