Mega-trends driving 2024 and beyond – an HL fund manager’s view

As fund managers, a key part of our job is looking ahead and making decisions based on where we think the world might be heading.

That means trying to answer questions about how emerging trends might impact businesses. And there look to be some big trends playing out right now.

This article isn’t personal advice or a recommendation to buy, sell or hold any investment. Investments will fall as well as rise in value, so you could get back less than you invest. Past performance also isn’t a guide to the future. If you’re unsure how these trends might apply to your own investment options, ask for financial advice.

The Net Zero transition

Net zero means not adding to the total amount of greenhouse gases in the atmosphere.

Whether we reach net zero or not, there’s enough legislation in place in major economies already to see change, so it should drive a lot of investment.

We’ll probably start seeing a pivot away from coal and oil towards more renewable energy sources. This means new electricity grids will need to be built. There needs to be an increase in capacity to do this to let electricity replace fossil fuels in transport systems like cars or trains though.

Electrifying the things we use day-to-day will need huge amounts of minerals and metals. Battery technology needs to make some big leaps before renewables can fill the role they’ll play in a decarbonised economy. It’s also unclear if it’s possible with the resources we have right now.

To even get close to net zero, every industrial process and day-to-day activity will need to be re-thought to cut energy intensity and material consumption.

These are big challenges, but that means they could also be big opportunities.

As carbon intensity (how much carbon dioxide is created when making electricity) drops, efficiencies will rise. This has never been a bad thing for business.

Of course, there will be losers along the way. Carbon pricing (the cost of emissions like damage to crops or health costs for heat waves and droughts), will punish companies unwilling or unable to adapt. This leaves a gap in creating a competitive advantage for those willing to take it.

Shielding portfolios from carbon pricing is a key challenge for funds. Capital-light, Intellectual Property (IP) and technology-rich businesses with below average carbon intensity are what we’re focussed on for HL Select.

Find out more about HL Select funds

Artificial Intelligence

Artificial Intelligence (AI) will drive efficiencies at rates we couldn’t imagine before. Anyone who thinks this won’t produce opportunities, should look at Nvidia.

Nvidia makes the chips that AI applications run on. In its third quarter earnings release, Nvidia reported revenues of $18bn, an increase of around $12bn against the same quarter the year before. Analysts are forecasting that in just two years, Nvidia’s annual revenues will have grown by over $60bn – of course, there are no guarantees.

With how much is being spent on the components that put this tech out into the real world, it’s fair to say that it will probably be a big part of future life.

There will be some big winners – like processor designers, hardware producers, and datacentre operators. But for us, it’s the potential for companies to up their returns by deploying the technology to cut through bottlenecks and lift service standards that’s most exciting.

And whole new product categories are emerging.

Microsoft’s Copilot costs $30 per month but reportedly can boost productivity by much, much more. We could potentially see hundreds of millions of workers using copilots in the future. That could add up to plenty of gross domestic product (GDP) growth and lots of revenue for Microsoft too.

We see Microsoft and Nvidia as some of the core beneficiaries of the early stages of the surge in AI development.

Technology on the roads

One trend we don’t think we’ll see emerging in 2024 just yet, is driverless vehicles being let loose on roads.

The risks of letting self-driving vehicles travel at speed on roads, surrounded by other vehicles controlled by human beings are high. The rewards, less so.

Currently, the law requires a driverless car has a driver at the controls, to be legally responsible for the vehicle. This begs the question, what’s the attraction to consumers?

We might not see driverless cars but newer models will have more tech in them anyway. And it’ll lead to smarter and safer travel. We’re particularly interested in Aptiv, one of the largest manufacturers of core electric vehicle components and intelligent electronics for the new generations of automobiles.

How will politics affect things?

We think the impact of politics on commerce tends to be overstated. Conflicts have been a constant for decades, but none had impacted the market in the way the financial crisis or Covid-19 has. That is, until more recently.

The world now looks to be entering a phase where nations have sharper elbows. Division and conflict are stepping into the spaces where unity and integration had been flourishing.

We can’t see this trend being positive for markets. But that’s not to say there won’t be winners. Re-shoring (returning production to a company’s country of origin), will boost growth in the western hemisphere and there will be winners worth backing along the way.

Politics will also be grabbing the headlines to an unusual degree in 2024 because of the large number of elections. Over half the world’s population heads to the polling booths, the UK and US included. The outcomes of these could decide economic paths for years.

Our top 10 holdings going into 2024 and beyond

HL Select Global Growth Shares (holdings by weighting, correct as of 29 January 2024)

1. Microsoft Corporation
2. Fiserv Inc
3. Autodesk Inc
4. Visa Inc
5. Medtronic plc
6. Alphabet Inc
7. GoDaddy Inc
8. Heineken Holdings
9. Vulcan Materials
10. Intuit Inc

Find out more about HL Select Global Growth shares

What do these trends mean for investors?

Whichever trend grabs the news, there are some things that will stay the same.

Cash flow is always critical to a company. Highly cash-generative businesses should always form the bedrock of a diversified shares portfolio.

Debt heavy companies are always riskier than those with cash in the bank. This is proven whenever recessions come around.

Businesses with regular revenues from products that clients can’t find somewhere else, are better than those that have to find fresh customers every day.

Filling your portfolios with companies that fit these descriptions means you can spend less time fretting about the future.

For HL Select, our challenge is to stay ahead of these megatrends. It’s not enough to identify the big stuff coming over the horizon though, we need to work out what it could be worth as well.

Tired of keeping up with the latest trends?

Knowing what’s coming down the line is a challenge. Working out how it might impact your investments is an even bigger challenge.

HL Select funds focus on a small number of stocks with long-term growth potential.

The three funds are managed by a team of experts, who continually review and monitor the holdings with the aim of maximising returns.

The HL Select funds are run by Hargreaves Lansdown Fund Managers Ltd.

Information provided about individual companies is our view as managers of the fund. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts from Bloomberg. They are not a reliable indicator of future performance. Yields are variable and not guaranteed. This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.

This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.