A move away from globalisation, technological revolutions in the energy and industrial sectors, and the shift from disinflation to reflation are some of the broad themes that investors need to start paying more attention to, according to Miton multi-asset manager David Jane. 
The manager, who runs three portfolios including the £381.1m CF Miton Cautious Multi Asset fund, argues that a number of “tipping points” appear to be present in several parts of the market – which will see many of the old conventions turned on their heads.
“As investors, our process has a natural tendency to look for trends,” he said.
“However, another feature of industries, economies and markets is tipping points, where something builds slowly and then reaches a point where it tips and then becomes an important new trend. It seems that a number of tipping points have been reached over the past year.
“We seem to be at a point in financial markets where many of the old norms are likely to end and need to be alert not just to the opportunity to invest in the new emerging industries as they tip into the mainstream, but also to avoid those industries and asset classes which are likely to be disrupted much more quickly than we are programmed to expect.”
One of the most obvious tipping points that seems to be nearly is deglobalisation, which the Miton multi-asset team has been following for a number of years.
World Trade Outlook Indicator
Source: World Trade Organization
The past few decades have been marked by the steady progress of globalisation but recent events – such as the UK voting to quit the EU and Donald Trump being elected US president on the back of an ‘America first’ agenda – suggest that this trend is at risk of reversal.
“We have watched this one build through the data, whether in trade disputes at the World Trade Organization or growing reshoring in Europe and the US, but the twin surprises of Brexit and Trump seem to tip this from a slightly obscure investment view firmly into the mainstream,” Jane said.
Looking to specific sectors and the manager highlights the industrial and energy spaces. Miton’s multi-asset team has been looking at new energy and industrial technology for some time, but thinks there are major catalysts that will drive these twin themes forward in the near term.
“In the new energy space, a large number of data points suggest that the industry is accelerating as it passes some important milestones. The cost of solar energy is now below the cost of grid energy in many US states and continues to fall each year,” Jane said.
“Irrespective of environmental issues, economics are driving solar uptake at a rapid pace. In fact, renewables now account for around 70 per cent of new energy capacity added in the US. At the same time, battery technology is becoming more efficient and is also falling in price which makes solar even more attractive to a typical household.”
Global solar capacity by 2015
Source: International Energy Agency
Once a technology such as this becomes cheaper, it can quickly become mainstream, the manager adds. When adopting solar becomes more of a case of “simple economics” rather than an environmental stance, then the industry could benefit from a significant jump in market share.
Industrial technology and specifically the ‘internet of things’ – or greater connectivity and interactive between devices, including everyday items such as watches and fridges – is another tipping point that Jane thinks will have big implications for investors.
“This area also seems to be at the point of becoming a mainstream investment thesis. In recent months we have seen the launch of a number of ‘internet of things’ devices into the consumer space which start to offer real benefits to consumers, whether it is the Amazon Echo device to control a huge range of connected devices or the Phillips Hue remote controlled lighting,” he said.
“These advancements move the ‘internet of things’ firmly into the mainstream and could lead to the sort of rapid acceleration of adoption that was seen with smartphones. The ability to monitor an elderly relative or a second home remotely is the sort of genuine benefit that can lead to rapid adoption.”
The final tipping point identified by the manager is the shift from a disinflationary environment to a reflationary one. Recent years have seen investors concerned by stubbornly low levels of inflation, but prices have started to tick up across the globe and the Bank of England now thinks it will overshoot the official 2 per cent target in the UK.
“The balance of the data suggests we have, but we hear contrary views from many, which suggests to us that the reflation story has a way to run yet if it proves to be the case,” Jane said.
“Related to this there has been a slew of recent commentary arguing that the 30-year bull market in bonds has ended which is consistent with the end of disinflation. If so, this would mark a huge tipping point away from a world which has persisted throughout most professional investors’ careers.”
Performance of fund vs sector under Jane
Source: FE Analytics
Jane has managed CF Miton Cautious Multi Asset and Miton’s other multi-asset funds since joining the company in June 2014. Over that time, the fund has made a 23.18 per cent total return, ranking it top quartile in the IA Mixed Investment 20%-60% Shares sector.
The fund has been more volatile than its average peer, with annualised volatility of 6.53 per cent versus 5.53 per cent, but has posted been hit with a lower maximum drawdown over Jane’s tenure as well as posting higher risk-adjusted returns.
CF Miton Cautious Multi Asset has an ongoing charges figure (OCF) of 0.82 per cent and yields 1.76 per cent.