With water scarcity and the “Space” economy headlining, UBS’ five preferred longer-term investment themes showcase a fusion of forward-thinking concepts shaped by technological progress, scarcity of resources, and evolving societal dynamics.
Ranked in order of significance, the top investment opportunities – according to Alexander Stiehler, head of Longer-Term Investment Themes at UBS – include Water scarcity, Diversity and equality, Space, Food revolution, and Consumer experience. The investment choices were carefully curated, leveraging valuation and momentum indicators pertinent to UBS’ longer-term investment strategies.
Presented amidst the current craze for AI-driven investments that have propelled the S&P 500 upwards by 12% year-to-date, UBS’ Space theme notably incorporates elements of artificial intelligence.
While discussing sectors without pinpointing individual stocks or investment instruments, UBS highlighted the following themes:
Water scarcity
The estimated theme’s size exceeding $655 billion anticipates a mid-single-digit annual growth over the coming years. Emphasizing wastewater treatment and water utilities, followed by equipment suppliers in water exploration, distribution, and treatment, UBS favors the U.S. industrials sector (XLI) for its appealing balance between defensiveness and cyclical traits, presenting an attractive investment option across market cycles.
Diversity and equality
Diversified across sectors, this theme offers a strategic blend of defensive, value and growth characteristics according to UBS. With potential to bridge societal wealth gaps and enhance GDP over the next decade, companies advocating diversity and equality in their value chains are positioned for sustained long-term outperformance, although near-term risks include legal contestations to affirmative action in certain U.S. states.
Space economy
Building on robust momentum, UBS sees alignment with its preference for the industrials sector (XLI), particularly aerospace and defense. The team noted the increasing significance of space-based assets and defense technologies in national security, amid escalating geopolitical tensions. Furthermore, the expanding role of AI offers new vistas for leveraging space-based infrastructure and satellite data synthesis. Despite several end markets being in their early stages, associated risks are deemed significant.
Food revolution
Driven by climate change and other factors challenging food accessibility, this theme advocates a transformation in the supply chain. It identifies digital services, online platforms, and automation as major beneficiaries, aiming to blend the defensive traits of consumer staples (XLP) with the innovation potential of technology (XLK). Investors are also encouraged to explore venture capital, impact, and sustainable investment strategies.
Consumer experience
Underpinned by technology and societal shifts, the consumer experience theme finds opportunities in traditional realms like travel and leisure coalescing with emerging virtual spaces such as the metaverse and online events. While the theme excels in quality metrics due to companies with robust balance sheets and high ROIC, it bears a relatively high valuation, according to UBS.
- ETFs focused on industrials include: (VIS), (IYJ), and (PPA) and (FIDU)
- Space ETFs: (ARKX), (XAR), (SPRX) and (UFO)
- Among Water ETFs: (AQWA), (FIW) and (PHO)
- Consumer Staples ETFs include: (FSTA), (FXG) and (PBJ).
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