The second half brings with it a host of investment risks and opportunities for advisors and investors. Jens Peers, CIO of Mirova U.S., discussed trends, risks, and opportunities for broad investors as well as sustainability-focused investors in the second half in a recent video.
3 Trends to Watch in the Second Half
The onset of the global COVID-19 pandemic in 2020 and ongoing geopolitical tensions resulted in many companies restructuring their global supply chains. This included securing supply chain participants in more politically aligned countries as well as moving supply chain contributors closer to home. “We call that friendshoring and nearshoring,” explained Peers.
This restructuring creates a variety of new opportunities within industries like transportation and manufacturing. However, relocations may be costly, both from a financial perspective as well as potentially disrupting production. Additionally, rising impacts from climate change on weather events such as tornadoes, hurricanes, and more may prove increasingly disruptive to companies.
It’s important to understand a company’s existing geographical climate risk and climate risk in new regions it may be nearshoring to. Advisors and investors should know these risks when seeking opportunities in this arena.
Healthcare and pharmaceuticals also prove promising trends looking ahead. “We’ve already seen exciting opportunities related to obesity in the last couple of years. We think that’s going to continue,” Peers noted.
“We also see more positive evolutions with drugs getting through phase 2 or phase 3 in oncology [research and trials].” These developments, particularly within oncology, will likely create notable return potential in the second half and beyond for healthcare investors.
A third arena of thematic opportunity lies in water treatment, which benefits from recent U.S. regulations. This regulation requires all drinking water to be treated for permanent chemicals, including polyfluoroalkyl substances (PFAS). These chemicals are used in the production of a range of products, such as waterproofing for clothing and Teflon.
Through the water cycle, these permanent chemicals make their way into the soil and groundwater supply, a toxic threat to humanity. According to Peers, the new regulations benefit just “a handful of companies that have a solution right now, and that may potentially lead to a multi-billion [dollar] market opportunity.”
Renewable Energy: Is a Rebound in Sight?
It’s been a challenging few years for renewable energy investments as investor sentiment and macro challenges have weighed heavily. The U.S. election still looms over renewable energy assets in the short term. However, Peers believes potential negative outcomes are already factored into current valuations. These include the possible repeal of the Inflation Reduction Act in the U.S. or the Green Act in Europe.
Climate change remains a significant driver for renewable energy. Two more recent developments also create fundamental support for the asset class. “Specifically in Europe, as they were very dependent on energy imported from Russia, there’s a bigger focus now on energy independence,” Peers explained. Additionally, “with the rise of AI, there’s also more demand for energy.”
Increasing AI demand creates greater energy demand for existing data centers. It also creates the need for more data centers to generate larger net energy capacity. Because data centers traditionally also commit to net-zero goals, it equates to even greater demand for renewable energy.
Advisors and investors seeking to harness this trend should also look beyond data centers themselves to their related supply chains. This includes the companies building data centers, cooling instillation manufacturers, and AI consulting companies.
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