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Investing in Megatrends

Stockholm (Ekonamik) – “Markets are ever-changing, and so is the financial industry. I have been working with financial markets since the beginning of the 1990s, which means that I still remember government bonds being way above 10% in Sweden,” says Swedbank Robur’s Head of Asset Allocation, Pia Haak, smiling.

Inspired by Leadership and Thinking Big

“I have had different roles and responsibilities during the years, but the common denominator has been a connection to savings and insurance. I joined Swedbank Robur in 2005 to work within team managing funds of funds. It included working with fund selection and portfolio management. For the last two years, I have been responsible for the Asset Allocation team at Swedbank Robur. We are ten people managing approximately EUR15 billion in blended funds and mandates.

Thinking of her journey so far, Haak reminisces about her earlier experiences in leadership positions. “I am extremely fortunate to have had the opportunity to challenge myself and lead and manage a team since 2006. Leadership and sustainability really inspire me. I find it really exciting and rewarding to see people grow together as a team, developing and thriving around the vision of Swedbank Robur as a world leader in sustainable value creation.”

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“Nowadays, I get the best of two worlds – combining leadership with fund management. I work together with a lot of talented people and together we make sure that we have an attractive offering for our clients.”

An Amazing Year…  but Hedge Funds Lag Behind

Looking back at 2019, Haak is enthusiastic. “It has been an amazing year – at least up until now.” December 2018 still casts a long shadow over market analysts, and Pia Haak is no exception. “The policy shift that we have seen this year from central banks all over the world has been a dominating theme. It has been very supportive for markets.”

Political and geopolitical forces also helped drive financial markets according to the head of asset allocation. “Another dominating market force on investors’ minds has been the ongoing US and China trade war, its implication for globalisation and the uncertainty it generates for companies thinking about investing. Brexit and Hong Kong protests have also worried markets. But consumption has stayed strong even though the manufacturing part of the economy has struggled hence being very supportive as well to markets.”

Haak acknowledges that the generally positive turn in 2019 did not materialise everywhere. “Generally speaking, the year has been less good for hedge funds. We had expected better returns then what we have seen so far. There are still interesting pockets to be found both in terms of strategies but also when it comes to managers and skills. However, it takes more in-depth due diligence and more time-consuming research to find the right manager.”

Thematic Investing in Megatrends

Strategically, Haak has a clear vision of how to go about finding the investment she wants. “Since some time back, we have been focusing more and more on growing our thematic investments. It means focusing less on regions and where a stock is listed and more focus on themes. Our goal is to capture the big megatrends that we see in the world.”

Mindful of the future, Swedbank Robur’s focuses on future-proofing its balance sheet. “The four megatrends we are considering are climate change, technology and digitalisation, urbanisation and demographics. They are all interconnected and are all about long-term and sustainable investing, which we believe is a prerequisite to find future winners and to avoid risks such as stranded assets.”

“More than ever, we live in a global world. At the same time, we know growth is currently scarce, and so is the yield that you can expect from risk-free assets. If you look at the Paris agreement’s sustainable development goals (SDGs) for 2030, you find areas of priority for organisations and policymakers such as clean water and sanitation, quality education, responsible consumption and production, among others. I believe that investing along those lines will help advance this positive agenda while helping us to find future winners.”

Recession Risks and the Manufacturing Cycle

“For next year it could well be that investors will put their faith on fiscal stimulus instead of monetary tools,” Haak says, looking ahead. “I think we will continue discussing recession risk. Of course we have a discussion about the possibility of a recession in the US and we are following macroeconomic news for signs of weakness. However, this is not my biggest worry currently. Our expectations are that we are close to the bottom in the manufacturing cycle and that PMIs should start to trend higher next year.

To the head of asset allocation, monetary policymakers lay at the core of what the future may bring. “The FED still has room to act with monetary tools if we see a continued slowdown. I ask myself what will happen if central banks would surprise with being more hawkish or if we would see some inflation coming in to the system. We could also see some fiscal stimulus to support the global economy. Finally, we cannot forget that it is an election year in the US, which will get a lot of attention,” she says.

Keeping an Eye on Credit Funds

Returning to hedge funds, Haak is concerned that present challenges will continue while hoping that they may trigger welcomed innovations. “In an environment where it is hard to find returns, we could see more focus on alternatives and alternative investments such as private equity vs public equity. The scarcity of investors time and the lack of returns could lead to challenging times for the industry and muted flows to hedge funds in 2020.”

“When investors can, they will most likely try to capture illiquidity premia. I am, to some extent, worried about the big flows we have seen to parts of the credit market, if they will reverse we could be in for some challenging liquidity issues.”

Room for ESG UCITS

“Maybe we could see newcomers to the UCITS-space focusing more on ESG in their philosophy and process. We would find this encouraging as it would be in line with our own thoughts.” Sustainability concerns will also remain a priority in 2020, according to Haak.

“ESG and a sustainable way of investing will be on top of most investors mind. Especially the challenge that we see related to climate change. I think investors don’t quite grasp the profound impact and influence that climate change will have on capital flows in many years to come.”

“ESG and the European taxonomy will impact markets next year and for many years to come. Certain sectors will be more in the spotlight that are in for disruption, such as energy with the transition from fossil fuel to clean energy.  We are just at the start of the impact seen from climate change,” she concludes.

Image courtesy of Pia Haak

Filipe Wallin Albuquerque
Filipe Wallin Albuquerque
Filipe is an economist with 8 years of experience in macroeconomic and financial analysis for the Economist Intelligence Unit, the UN World Institute for Development Economic Research, the Stockholm School of Economics and the School of Oriental and African Studies. Filipe holds a MSc in European Political Economy from the LSE and a MSc in Economics from the University of London, where he currently is a PhD candidate.

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