Supertrends

Pushing for change

For many of us, the COVID-19 pandemic brought our lives almost to a standstill, and in doing so has altered the way we live, work and learn. This poses a significant challenge for governments in terms of how they manage these evolving economic and societal trends. We believe that our long-term Supertrends thematic framework is well positioned to capture many of these upcoming changes. Indeed, we see developments in 2020 as an accelerator for many of our themes rather than a temporary phenomenon, and each of our Supertrends has proven to be solidly positioned in this challenging environment.

Setting the trend

When looking at our “Anxious societies – Inclusive capitalism” Supertrend, for example, we find that popular frustration has shifted more toward issues at home, in particular inequalities, rather than being focused on perceived outside threats and a move toward protectionism. The coronavirus pandemic has shown, if anything, that the real emerging threats are global and require multilateral cooperation, as well as individual protection. The subthemes “Affordability,” “Employment” and “Personal Security” perfectly capture today’s challenges for governments, as well as opportunities for the private sector. We launched our “Infrastructure – Closing the gap” Supertrend back in 2017 in light of the looming global infrastructure gap, which is expected to total an estimated USD 15 trillion by 2040. Various fiscal stimulus packages announced during the worldwide economic lockdown have targeted infrastructure investments, including the European Union’s EUR 750 billion recovery plan, which includes spending to accelerate the region’s green and digital transformations. Hence, the pandemic could spark an uptick in investments rather than a postponement, in our view.

Our “Technology at the service of humans” Supertrend is particularly well placed, as it touches upon the type of flexibility suddenly required in terms of living and working in the COVID-19 era. The coronavirus quarantines have accelerated the relevance of each of the existing subthemes, leading to a permanent rather than temporary increase of e-commerce, demand for cloud infrastructure, online media consumption and artificial intelligence services, among others. Digitalization, automation and connectivity will remain crucial in the years to come as trends such as home office, remote medical care, online shopping, cashless payments, home schooling and entertainment have risen to new levels of growth in terms of usage and sales this year.

The coronavirus pandemic has also put the elderly in the spotlight given that this cohort is among the most vulnerable to COVID-19. The race to find an effective vaccine has sharpened the focus on the pharmaceutical sector, which is further accelerating the relevance of our “Silver economy – Investing for population aging” Supertrend. While the relevance of the therapeutics and devices subthemes has increased during the pandemic, so too have the care and facilities subthemes as the COVID-19 crisis has underscored the importance of expanding the number of hospitals and facilities for the elderly in coming years.

Sustainability: At the heart of societal trends

On the other side of the demographic tree, the focus of Millennials is toward technology and sustainability. New ways of learning through home schooling and a further acceleration in the consumption of subscription- based service such as Netflix, Spotify and others were among the core trends during the pandemic. In addition, this Supertrend has focused on sustainability since its inception, and we have applied a strict environmental, social and governance (ESG) screening for single stocks, as this generation is highly conscious of the environment, as well as social and governance issues.

The Millennials and Generation Z cohorts have pushed for and driven a more sustainable way of doing business. So much so that we believed a tipping point had been reached with respect to the responses of broader society including governments, consumers and companies to climate change. We hence introduced in 2020 a new sixth Supertrend: “Climate change – Decarbonizing the economy.” Greenhouse gas emissions (GHG) are the main contributor to global warming, and experts forecast a material increase in the incidence of severe floods, droughts, fires and storms the greater the warming is. Under the 2015 Paris Agreement, countries agreed that emissions needed “to peak as soon as possible” and said they would follow up with reductions in order to achieve carbon neutrality (balance between emissions and removals) between 2050 and 2100.

We believe there is an investment case to be made around the companies that contribute most effectively to the transition to a less carbon-intensive world economy. The economic shutdown caused by the COVID-19 outbreak has reduced GHG emissions substantially in certain regions, which clearly signals what could be achieved in the future. The key sectors that our “Climate change” Supertrend focuses on are power generation and fossil energy sources, transportation, and agriculture/food production, as these are responsible for the bulk of man-made carbon emissions.

Generating alpha

Credit Suisse Supertrends focus on long-term societal trends for investors with a multi-year investment horizon. Our sector equity analysts have identified key trends and the stock selection benefits from their deep expertise in the sector and knowledge with regard to the specific companies. Given its tailor-made building block system, active selection is a key pillar for our thematic framework.

With around 25-40 single stocks per Supertrend, our approach offers a good degree of diversification with the ultimate aim to generate significant alpha over the long-term thanks to a deep bottom-up single stock analysis. Furthermore, each Supertrend’s clear thematic focus ensures a meaningful difference from broader equity market indices. We have also made sure that each Supertrend includes a sensible combination of cyclical and defensive companies applying a barbell strategy of index heavyweights and selected small cap pure play companies. As such, diversification and risk management are top priorities in the construction of our Supertrends. The aim is to protect investors from idiosyncratic single company events or temporary headwinds in an industry, region or currency.