Technology, sustainability, geopolitics and monetary policy will be the four cornerstones of global markets for the next 10 years, according to Lazard Asset Management’s Steve Wreford, who said there are a number of ways for investor to exploit them. 
Wreford (pictured), manager of the Lazard Global Thematic Focus fund, said within these four areas there were a several secular and structural changes that will shape the global economy for the next decade.
The first trend – technology – is something that the world is completely occupied with currently, Wreford said, highlighting the stock market leadership of the FAANG stocks (Facebook, Amazon, Apple, Netflix & Alphabet’s Google), which have accounted for a major part of the S&P 500’s returns over the past five years.
And while Wreford agrees that the technology sector will be one of the ‘tent poles’ holding up the global economy in a decade’s time, they won’t be the stocks that everybody is investing in now.
“Technology is like a rocket ship,” Wreford explained. “It takes off and people think it’s going to go to the moon.
“But, actually, technology is connected by an elastic band to the rest of the world and eventually the rest of the world catches up and that means that regulation is going to catch up. Public attitudes towards these companies are going to change. People are worried about the power that they have.”
The technology stocks that dominates markets in the future will be specialists in artificial intelligence rather than the current platforms.
The next trend is sustainability, which Wreford said is going to be a big driver of the market during the 2020s as awareness of issues continues to build.
The third is geopolitics, where there is the potential for heightened risk over multi-lateral issues such as trade.
“It matters a great deal for companies who have spent a quarter of a century outsourcing everything they do to China and Asia,” he said. “Now that framework of stability is under threat, so we have to think about what will replace it.”
And the final theme finally is monetary policy, which after a decade of ultra-low interest rates is likely to have changed people’s attitudes towards and concepts of money, Wreford explained.
“If it’s zero per cent interest, that means money is free. And if something is free, it’s usually not worth anything,” he said.
“What if money isn’t worth anything anymore? And that is a very dramatic concept that changes the rules for everything.
“It changes the rules for investors because they need to think about what happens next.”
As such, the Lazard manager has identified six themes from these four areas for the Lazard Global Thematic Focus.
Asset efficiency
The first is asset efficiency, which Wreford said is the application of technology to make physical assets more efficient. For example, being able to reduce a building’s energy usage.
“Imagine if we could save 20 per cent on the energy bill for every building in London,” Wreford said. “That would be a huge contributor towards solving climate change.”
One stock the fund holds for this theme is US company Johnson Controls which puts operating systems into buildings to achieve these efficiency changes.
Johnson Controls stock price over 5yrs
Source: Google Finance
“Johnson Controls get all of their buildings to talk to each other to share best information and best practice about how they save energy, and I find that to be a really exciting opportunity,” said the fund manager.
‘Bits of chips’
The technology needed to make “things smarter” also falls into Wreford’s ‘bits of chips’ category and focuses on the semiconductors space.
“You don’t want to own all of the semiconductor supply chain. You just want to own some of them,” he said. “That’s why the theme’s called ‘bits of chips’.”
One company fitting into this theme is Texas Instruments, which provides analogue chips for interpreting the outside world so that a computer can make it more efficient.
Empowered consumer
The next theme ‘empowered consumer’ feeds more into the sustainability and how the next generation of consumers emerging during the latest demographic shift “have an entirely different idea of what it means to be a consumer”.
Wreford said: “The whole intersection of ethical values, digital relationships and everything else and where that’s going means the consumer facing company of the future will be very different. That’s our empowered human being.”
Software as a standard
The ‘software as a standard’ theme focuses on the wave of technology coming in to replace “a large number of white-collar jobs,” over the next decade which Wreford believes will have an extensive impact.
Autodesk stock price over 5yrs
Source: Google Finance
One example of this is Autodesk which provides software that allows you to not only model building construction but order all the materials needed and have them delivered, removing the people involved in that process.
Digital runways
‘Digital runways’ focuses on financial technology in emerging markets and how the unbanked population are brought into the financial system, said Wreford, providing them with financial advice and education as well as access to loans.
Data networks and profits
Finally, the data networks and profits’ theme directly addresses the opportunity of artificial intelligence and the challenges in data privacy.
The Lazard Global Thematic Focus strategy was established in 2018 and launched to the UK retail market earlier this year. The fund is run by the same team behind the Lazard Global Thematic fund but is a more concentrated strategy in terms of themes and holdings.
“All of my personal equity allocation is in this one fund. All of it,” Wreford said. “My point is that why would anybody wants to take such a risk, but I see this as a less risky portfolio than investing in the benchmark because each of these ideas are anchored to where the world is going to go in the next decade.
“And to me, that helps me to sleep at night with a portfolio that looks nothing like the benchmark.”
He added that: “Benchmarks tell you a lot about what has worked historically but they don’t tell you anything about the future.
“So, today’s concentration and obsession with large cap US technology stocks, is a concentration in markets that should represent a risk that all investors need to be aware of. It’s most unlikely that that will continue to work for the next decade.”