In this article, we share the long-term investment trends that we expect to be prominent in 2017.
These include:
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Sugar and obesity
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Disruption
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Climate change
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Corporate governance
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Social license to operate
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Supply chain scrutiny
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Factory farming
Sugar and obesity: a risk to earnings
Sugar is emerging as one of the most prominent investment risks for the global food and beverage industry. Science has linked high sugar consumption to obesity and Type 2 diabetes at a time when obesity rates are rising and healthcare costs for governments are growing. A long-term trend toward health and wellness is already limiting the growth profile of companies manufacturing and selling products with high sugar content.
Disruption: technology with the potential to upend mature industries
In 2017, we expect the next generation of disruptive technologies to deliver the first waves of impact. A few industries in particular will see technology change the way they do business, namely manufacturing (automated vehicles/driverless cars), finance (Blockchain) and retail (online retail moving offline).
Climate change: momentum on renewables will continue.
The private sector is proactively preparing for a renewables-centric and climate change-resilient world. The continued focus on renewables and energy security will ensure that electricity prices and energy will remain heated discussions globally in 2017. This is likely to add to short term uncertainty for investors as well as utility and fossil fuel companies in the medium term.
Corporate governance: CEO pay and persistence of bonuses
The spotlight on executive pay is firmly on bonuses and long-term incentives as fixed pay appears to have receded to pre-Global Financial Crisis levels but bonuses at some companies appear consistently high. With increased investor focus on the components of executive pay and whether or not the hurdles that determine vesting reward stretch performance, executive pay will be a key issue for investors in 2017.
Social licence to operate
Key in 2017 will be the remuneration structures financial services firms have in place for front-line sales staff. If there are sales incentives for those who sell to customers, the structure of these incentives will be scrutinised as well as the presence of safeguards to ensure that customers are sold products that are in their best interests, irrespective of internal sales targets. Investors now recognise that sales targets alone may deliver growth in the short term but the flipside is a risk to earnings and reputation in the medium to long term, if sales targets are not checked with measures to ensure that those sales are in customers’ best interests.
Supply chain scrutiny broadens beyond the garment sector (electronics, food and agriculture sectors)
Globally, some of the largest retailers and manufacturers are only just starting to audit their lengthy supply chains in response to growing scrutiny that is unlikely to abate. For instance, the Modern Slavery Act in the UK will increase attention on human rights across all sectors and all supply chains. Ultimately, a lack of control over a supply chain raises the risk of business interruption and reputational damage and investor awareness of this issue is important.
Food and agriculture: human resistance to antibiotics
Recent scientific studies have linked human resistance to some types of antibiotics to their use in meat production. As consumers become more educated about the potential health risks, they are likely to demand antibiotic-free meat. Reduced use of antibiotics by factory farmers will change cost structures and may lead to price rises for consumers. Consumption patterns may therefore also change, affecting the growth and profitability of listed food and agricultural companies globally.
Final thoughts
As long-term investors, understanding the way the world is changing is crucial. At any point in time, a complex web of trends is shaping industries, creating headwinds and fuelling tailwinds.
Source: AMP Capital 12 April 2017
Senior ESG Analyst, Investment Research, AMP Capital
Important note: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person without the express written consent of AMP Capital. © 2017 AMP Capital Investors Limited.