UBS revisits its top five long-term investment themes; Ocado shareholders might not be too chuffed

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UBS has revisited its favourite long-term investment themes and decided “the food revolution” and “automation and robotics” no longer cut the mustard.


That leaves a top five of enabling technologies; clean air and carbon reduction’ family businesses; medical devices; and e-commerce.


“Enabling technology companies have benefited from digital trends accelerated by the pandemic and are enjoying robust momentum. We now expect spending on enabling technologies to jump from US$571bn in 2020 to US$1.1tr in 2025,” the Swiss bank said.


The fundamentals are supported by resilient spending levels on information technology (IT) and also by 5G infrastructure development and end-demand, as well as supply chain shortages.


Clean air and carbon reduction get the thumbs-up with UBS identifying wind and solar photovoltaic (PV) energy, battery-powered electric vehicles and low-carbon and disruptive energy technologies used in buildings as the areas to look at most closely.


As for family businesses, UBS advises focusing on smaller-cap stocks which should catch up in an economic recovery.


“Family businesses offer good growth and risk-return characteristics because of their focus on quality and innovation. The strengths of the investment theme materialise over the longer term, as family businesses align their strategies between the company managers and the key shareholders,” UBS said.


In the medical devices space, UBS says the ageing population and growth of the over 65 age group will create more opportunities for companies selling medical products, even after the boost from the Covid-19 pandemic fades.


As for e-commerce, this sector should benefit from the structural shift toward shopping online, as consumer behaviour is changing in response to rising smartphone penetration, technological advances, and improving consumer convenience.


“The theme is fuelled by population growth and urbanisation trends, and it has benefited from the pandemic, which has accelerated the structural growth,” UBS said.


The “food revolution” no longer features among our UBS’s Top 5 favourite long-term investment themes, mainly because it has fallen behind other themes on momentum, although many other quantitative assessments still are strong.


“Nevertheless, the theme remains attractive, driven by structural forces, and we expect it to grow faster than global GDP over the next decade,” UBS said.


As for automation and robotics, it gets binned from the top five due to a less attractive valuation relative to other themes.


“Nevertheless, the investment case remains intact, in particular, short-term drivers such as the lessons learned from the pandemic, global supply chain issues, and high logistics costs should lead to a rethinking of the manufacturing footprints of global industrial companies,” UBS said.


“We expect some reshoring of production capacities to Europe and North America. To run these smaller factories efficiently in higher-wage countries, firms need to invest more in automation equipment. On top of that, a higher usage of industrial automation software is a key driver for stronger earnings growth longer-term,” UBS said.

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