Mark Haefele, the soft-spoken global chief investment officer at UBS wealth management, tells Penta that there is “still room for markets to improve,” but, at this point in time, he is advising wealthy clients in particular to invest in “longer-term trends.” There is a lot of sophisticated analysis packed into Haefele’s seemingly innocuous remark.
Today, wealthy families have a competitive advantage over all other investors, public and private: They alone can and do invest for the long term. Haefele and his research team point out that, at a time when low capital costs should be spurring major infrastructure investment on the part of governments and corporations, the opposite is in fact happening.
Public investment in the U.S., as a share of gross domestic product, is at its lowest level since 1947. It’s the same in developed countries across the globe. In the United Kingdom, fixed investment accounts for its lowest share of GDP since the 1960s. Haefele says the private sector isn’t investing for the long term either, for many reasons ranging from corporate tax-code disincentives to the fact that capital costs are actually high for small- and medium-size companies. As to governments missing out on historically low borrowing costs to finance multiyear infrastructure projects that will spur future growth, there’s a reason for that inertia, as well. Notes his research team:
“Government borrowing costs are low, but the growth of government revenue is also low. Governments casting a wary eye at the ‘bond-market vigilantes’ of financial markets may worry that to raise borrowing at a time of low income growth will lead to an adverse bond-market reaction.”
But, of course, the imperative to invest in long-term projects and trends—to meet, say, the needs of an aging population in developed nations or the basic infrastructure requirements of developing nations—is as acute as ever. And that, in Haefele’s opinion, is the opening for ultrahigh-net-worth investors. If you want your portfolio to have an impact and earn market-beating returns, he says, you need to be investing in multiyear infrastructure projects that address the real needs of the future.
Demographic shifts and income inequality are trends that open up investment opportunities for the patient investor in everything from drug discovery to education and clean-water infrastructure. But technology also seems to have Haefele and his team hot and bothered. IDC, a provider of information-technology market intelligence, estimates that just five years from now, the global digital universe will expand to 44 zettabytes. That, to put it in a language or an image that some of us might understand, is the equivalent of 44 trillion gigabytes—or a 50-times expansion in just a decade.
The key IT infrastructure needs that Haefele has identified are in transmission, particularly in emerging markets. A KPMG report claims that $1 trillion in investment is needed in the next five years simply to fill the gaps in emerging market telecommunications infrastructure. If you’re looking for low-cost ideas in this space, consider ETFs such as iShares S&P Emerging Markets Infrastructure Index fund (ticker: EMIF), PowerShares Emerging Infrastructure Portfolio (PXR), and EGShares Brazil Infrastructure (BRXX)....MORE