For some, 2020 has been a year of confusion. Consequently, it acted as a catalyst for the birth / acceleration of many key investment themes in the coming years, in our view.
In this article, we discuss 3 key investment themes for 2021 we think have great potential. Specifically, we share our market and investment outlook for 2021. Finally, we also highlight the companies that may be positively exposed to the trends discussed.
It is worth noting that the companies associated are highlighted (not an exhaustive list) based on their business exposure, not by our analysis, and hence, does not constitute any advice. Of course, feel free to chip in the discussions in the comments below 😊
Among many, the 3 key investment themes in 2021 are
- Clean energy: The race towards zero carbon
- The digitalization of everything
- Growing with Cannabis
Clean energy: The race towards zero carbon
According to MSCI, socially responsible investing has its roots tracing back to the 1960s. But, with little traction since.
With increasing awareness of the Socially Responsible Investment (SRI) movement, the past decade has seen significant traction and demand for such investments. Fast forward to today, ESG investing (also known as sustainable/socially responsible investing) holds ~$17.1 trillion in assets as of end of 2019 in the US alone. That’s one of our every three dollars managed professional in the country!
Besides the obvious argument that clean energy is the future, why do we think that our hypothesis is the right one?
First, efficiency. Renewable energy technologies are clean sources of energy that can be produced at a significantly lower environmental impact relative to traditional sources.
Second, running cost. While the initial cost of manufacturing may be heightened, the longer-term impact suggest it will be both more cost efficient both for its consumers and producers.
Finally, new technologies open doors to new opportunities. The need to build new tech infrastructure has given rise to many new and emerging business opportunities, as we will explore later in the article.
With that said, here are a few key subsectors that we believe will be the talking point for the year 2021 (at least!).
Electric vehicles / Autonomous vehicles mania
Perhaps the most obvious of them all is Tesla. With >700% return in 2020, and a market cap that is greater than the world’s top 10 car manufacturers (ex Tesla) combined, Tesla has been at the forefront of transport electrification.
Interestingly, 2020 saw the rise of SPACs, which introduced numerous electric vehicle (EV) manufacturer to the public eye. In addition to the Tesla and the traditional car manufacturers, here are just some of the new/potential players in the EV market.
Plant-based food market
The zero-carbon initiatives have also made its mark in the food retail industry.
Demand for plant-based substitutes skyrocketed over the past few years with Beyond Meat leading the trend. Evidently, Nestle reported that 87% of Americans are now including plant-based protein in their diets.
Combined with consumers increasingly more health-conscious, we hypothesize that the plant-based segment will grow markedly in the coming years.
Unfortunately, there is one key issue that persists – costs.
As for most new and emerging industries, costs/scale is the main obstacle that potentially will deter new customers from engaging. Remember the days when 32MB thumb drive cost a fortune? Today, you can get a 2TB thumb drive for ~$25-30.
Plant-based food remains on pricey relatively to like-for-like substitutes. We think that growing demand, continued reinvestment in the industry and greater awareness about plant-based diets will gradually help the industry overcome this issue in the medium term.
Here are few companies engaged in the plant-based food sector.
The digitalization of everything
Perhaps the only silver lining to the coronavirus crisis is the need for digitalization (of everything).
The pandemic-induced lockdown and social distancing rules meant that we need to alter our daily habits, such as the way we shop, consume, exercise etc. Such impact didn’t take long to surface in the data. For example, US e-commerce penetration grew by 10 years’ projected growth in the span of 3 months after the pandemic started to take center stage.
“If the pace of the pre-coronavirus world was already fast, the luxury of time now seems to have disappeared completely”. – McKinsey
Along with other analysis and data points, we hypothesize that not only that the trend will persist even after the pandemic, we also expect significantly increased in investments in these segments.
The skyrocketing demand for online e-commerce has never been greater and well documented. We wouldn’t add much more here as it’s pretty self-explanatory.
Here are a handful of stocks that we think warrants investors’ attention on the back of booming online e-commerce.
The rise of cloud computing
To put it simply, cloud computing is the on-demand availability of computer system resources, or pay-as-you-go (or as you need). The benefits of scalability and data management are now increasingly available to the mass market.
Dropbox, for example, is a cloud storage company that provide users to access files across any devices with up to 1TB of free storage. Other segments where cloud computing is prevalent are education, data management, marketing platforms, healthcare and many more.
Here are a fraction of companies associated with cloud computing.
Growing with Cannabis
Perhaps a rather taboo subject for many, the inflection point for the cannabis industry might just be around the corner.
The industry has remain underappreciated and misunderstood by the market. Canopy Growth, for example, offers edibles, beverages, vapes, oils related product that includes cannabidiol (CBD) and tetrahydrocannabinol (THC). For example, CBD is known for treating depression and anxiety, while THC can help nausea and insomnia.
It’s not about smoking joints and getting high 😉
Politically, with the US now led by a Democratic President, Senate and House, we expect weed to be legalized federally by 2022. Focusing on the US for now, here’s a map of the legality of cannabis across the country.
Globally, governments have been increasingly open to explore the legalization of cannabis. For instance, in 2019, the Australia Capital Territory became the first state to legalize recreational use of cannabis. Interestingly, Denmark is currently running its 4-year pilot medical cannabis program since January 2018.
Going forward, should legalization of weed be widespread, we expect producers to faced pent up demand. This should bode well for the industry given that the market has not fully price in such potential outcome.
It is worth noting that most companies in this sector remain loss making.
Here are some companies active in the cannabis industry.
Among many investment trends that has been borne out of the tragic pandemic crisis, we conclude that the 3 key investment themes discussed above has the greatest potential.
With that in mind, we will continue to explore the merits of each company associated with these investment themes.
We love to hear any ideas and views from you, so please drop us a comment and share your investment themes for 2021!
Thanks for reading!