Quintet Counterpoint 2022 Investment Outlook

Protecting our planet

Thematic investing

Protecting our planet

We’re committed as a firm to using only renewable electricity from 2022 and will no longer invest in companies that derive significant revenue from coal.

Download and listen now: Investing for a sustainable future

Walking the talk

As a trusted fiduciary, it is imperative that we “walk the talk” and our investment products and services fully reflected how we act as a company.

As part of our ongoing efforts to contribute to global initiatives to combat climate change, we will not invest in any companies that extract or generate energy from coal. In addition, we will make sure our offices use only renewable electricity, or equivalent, from 2022 onwards.

From 2022 we will start excluding companies that derive more than 10% of their revenues from thermal coal extraction or power generation from portfolios. We believe coal is an obsolete energy source, financially unviable over the medium term and highly detrimental to the environment.

The International Energy Agency (IEA) found that CO2 emitted from coal combustion is responsible for over 0.3°C of the 1°C increase in global average annual surface temperatures above pre-industrial levels. This makes coal the single largest source of global temperature increase.

According to the Intergovernmental Panel on Climate Change (IPCC), coal-fired electricity generation must be reduced to near zero to limit global warming to 1.5°C as defined in the Paris Climate Agreement. Under the report’s middle-of-the-road scenario, combustion of thermal coal needs to be reduced by 75% from 2010 levels by 2030, and by 98% to 100% by 2050. Such as shift is possible if companies and governments commit to the transition. For example, in the UK in 2010 thermal coal comprised around 15% of the country’s energy mix, following investment in renewables thermal coal now comprises just 2%.

Thermal coal exclusion

As a consequence of our new thermal coal exclusion, we will divest from the German energy company RWE

In 2019, RWE used 51 million metric tons of lignite, equivalent to 2,040 million cubic feet – enough to build a pyramid that is 50% higher than German’s tallest building, the Commerzbank Tower. RWE has said it is improving its approach and targets net-zero emissions by 2040. However, we believe the path of the change for all thermal coal extractors and power generators is not adequate.

Globally, almost 30% of the world’s electricity now comes from renewable sources, a figure that rises to over 40% in some our operating markets such as Germany and the UK. Annual investment in renewable power has grown sixfold since 2004 to over USD 300 billion, an investment that has facilitated our electricity transition. However, despite this huge investment, the world’s share of electricity coming from low-carbon sources – a measure that includes nuclear as well as renewables – has remained stagnant over the past three decades, as renewables’ growth has merely offset nuclear’s decline. Renewables includes hydropower, biomass, wind, solar, geothermal and marine production; it does not include nuclear or traditional biomass. Furthermore, the world’s energy usage – a measure that includes transport and heating as well as electricity – remains reliant on fossil fuels. In part due to the predominance of oil-fuelled cars, trucks and planes, renewables account for just 11% of the world’s energy mix. As we shift our electricity consumption to 100% renewable, we know that, collectively, we have far to go.

Committed to sustainability

We are committed to a sustainable approach as a business and as investors.

We believe the investments we offer and how we act as a firm should be fully consistent. We have combined our sustainable investing and corporate social responsibility teams to ensure we meet these goals. As far as we are aware, Quintet Sustainable is the industry’s first true 100% sustainable portfolio that is fully globally diversified. Within our investment philosophy and process, sustainability is embedded from asset class forecasts to asset universe to instrument implementation. We have the flexibility to incorporate the best investment managers in portfolios in pursuit of performance.

Contact your Client Advisor to find out more about Quintet’s sustainability commitments and how we can help you manage your money for future generations.

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Thematic investing

Long-term thematic investing can help investors benefit from key structural and technology trends.

Download and listen now: The benefits of long-term thematic investing

New technologies have provided attractive investment opportunities over the past decade. Disruptive innovation themes are likely to do so over the next – from artificial intelligence and robotics to genomics and cleantech.

Since 2007’s iPhone launch, digital ecosystems have developed immensely but we believe we’re about to enter a new exponential tech age. By 2030, over 2 billion new users could be online via increasingly powerful mobile devices and technology may become even more common in every aspect of life. Climate and health themes are likely to intensify as well. Innovations like quantum computing, decentralised finance (DeFi) and the space economy are on the horizon too. These structural themes are likely to define tomorrow’s winners.

Learn from the past

Learn from the past and look for tomorrow’s long-term winners

Structural trends can be extremely powerful in the long term, as we have seen over the past decade or so. For example, since the iPhone kickstarted the modern mobile digital era in 2007, the technology-heavy Nasdaq 100 Index has delivered a total return of more than 700%, easily outpacing broader equity markets and powering through major global crises as if they were just small speed bumps.

The performance of some technology stocks was even more spectacular – Netflix shareholders have enjoyed total returns of more than 16,000% since 2007.

We believe winners get bigger in a digitally connected world as they are able to develop larger ecosystems and stronger moats. For example, in terms of market capitalisation, the top 10 US technology stocks of today now account for 29% of the S&P 500 Index versus just 5% in 2007. Together they are almost as big as the market value of all the companies in Europe’s Stoxx 600 Index, highlighting this “winner takes all” trend. The power of ecosystems and network effects is hard to ignore – Apple now sells more watches than the whole Swiss watch industry combined, even though watches represent less than 10% of Apple’s sales. Despite such big winners, new services can also emerge in this rapidly changing tech-enabled world via themes such as big data, software-as-a-service, the platform economy, digital payments and cybersecurity.

Concepts like cost reduction through scaling up and innovation are very important too – technologies like renewable energy and electric vehicles have developed so much over the past decade that they are now economical or more sought after than legacy fossil fuel alternatives. Popular sentiment, which ultimately drives regulation and consumer trends, can also have a big impact. For example, the increasing focus on climate change is leading to greater clean energy investments, more support and demand for clean mobility, and growth in social media. In other areas, long-term trends such as ageing populations can drive themes like robotics and future health.

Innovate faster

Faster innovation could mean wider gap between “winners” and “also-rans”

Innovating is getting easier, faster and more disruptive as a growing ecosystem of angel, venture capital and private equity investors incubate and scale start-ups at a higher pace every passing year, making them ready for global domination. The flip side of disruptive innovation is the likely drag for old-economy industries. We see the greatest headwinds for fossil fuel-linked sectors, bricks and mortar retail and potentially even traditional finance. The gap between the few “winners” and many “also-rans” could become even more acute this decade as disruptive innovation and digital ecosystems take control of markets.

Our approach

Our approach to thematic investing

Thematic investing allows investors to think about the future in our changing world. The objective is to invest in sectors, industries and companies that are expected to become structural winners. Future winners are likely to be the businesses that anticipate and understand how the future will be drastically different from the past. Thematic winners can not only be the innovators of new products or services but also work towards solving major problems like climate change or an ageing population.

Themes are secular growth trends expected to exponentially expand over multiple years. Their effects tend to be recognised but still underappreciated by the wider market.

We use five megatrends in our analysis:

demographic change;
regulatory waves;
social shifts;
sustainability;
technological progress.

These structural drivers can operate with a degree of independence from the broader economic cycle.

Key themes

Key themes this decade: digital ecosystems, disruptive innovation, climate solutions and future health

We believe digital technology themes could further increase their dominance this decade as the long-term structural supports are compelling including likely advancements in foundational technologies like artificial intelligence (AI), further growth in the global online user base and leaps in global data volumes. Together with improvements in physical technologies such as robotics, 3D printing and space tech, the pace of disruptive innovation is likely to increase this decade, in our opinion.

In planet themes, we see long-term opportunities for growth and commer-cialisation as the focus on climate change intensifies. Themes such as clean energy and electric vehicles have established their credentials in recent years, so this decade might be about scaling up and share gains from fossil fuels. New planet-friendly themes like vertical farming, meat alternatives and hydrogen are trying to prove their credentials too.

As for people themes, digital health solutions could benefit from high growth while we also see disruptive potential from genomics and biotech. The global health industry was able to deliver Covid vaccines within a year of the pandemic start using new technology such as mRNA, which points to the longer-term possibilities. In addition, a rapidly ageing population and rising healthcare costs provides strong tailwinds for innovation in future health themes.

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Our ambition

Through thematic research, our investment analysts are looking to expand our understanding of long-term structural trends. Our ambition is to help our clients by identifying tomorrow’s winning themes and offering investment opportunities linked to them. Thematic investing can also help our clients be ready for the numerous disruptive innovations that we believe are likely this decade. We believe our clients can help create a better future by investing in themes falling into the people, planet and productivity pillars of thematic investing.

Get the full report

You can download the full report here in English. Or visit the bank website in your country by clicking on the links in the section below to download the report in your own language.

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Our investment outlook in Belgium

Our investment outlook in the Netherlands

Our investment outlook in Denmark

Our investment outlook in Luxembourg

Our investment outlook in Germany

Our investment outlook in United Kingdom

Investing puts your capital at risk.
Past performance is no guarantee of future results.

This document is marketing material and has been prepared by Quintet Private Bank (Europe) S.A. This document is defined as non-independent research because it has not been prepared in accordance with the legal requirements designed to promote the independence of investment research, including any prohibition on dealing ahead of the dissemination of this information.

This document is of a general nature and does not constitute legal, accounting or tax advice. This document does not provide any individual investment advice and an investment decision must not be based merely on the information and data contained in the document. All investors should keep in mind that past performance is no indication of future performance, and that the value of investments may go up or down. Changes in exchange rates may also cause the value of underlying investments to go up or down.

The statements and views expressed in this document based upon information from sources believed to be reliable – are those of Quintet Private Bank (Europe) S.A. as of 07 December, 2021 and are subject to change.

Copyright © Quintet Private Bank (Europe) S.A. 2021.
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Investing for the future