3 Plus 1 Investment Themes, 2016

This is our ‘’3 plus 1’’ investment themes pick for 2016. We have identified opportunities in the Defense, Infrastructure and Financial sectors, likely to provide positive returns in the years ahead. The outcome in the upcoming US elections is likely to affect the magnitude and the performance of these sectors; however, based on legislation recently passed by US Congress and the political need to provide further stimulation in the US economy, we expect historically traditional sectors with big economic multipliers to perform well.  Growth, productivity and employment are likely to increase by undertaking investments in infrastructure that has experienced underinvestment post 2008.

• Defense:

Global Military is likely to be developing consistently over the next years. Rising public spending is a leading indicator that the sector is likely to provide positive returns in the years ahead. Also, elevated geopolitical risks and market uncertainty support this hypothesis. We are expecting major US defense companies to benefit from an upcoming global demand in military spending. We like more US defense manufacturers and military software firms; relative to their European counterparts.

• Infrastructure:

The 2008-09 financial crisis was the main reason for significant underinvestment in infrastructure. However, in 2016, we are expecting the sector to deliver solid returns. US President Obama has been calling for a grand $21 billion in new national infrastructure investment since 2013. The budget finally was passed by the US Congress in 2015, which is likely to generate momentum for the sector and the economy. Historically infrastructure investments have a long-term time horizon and can mobilize additional resources – public and private sector partnerships – with strong cash flows to stimulate economic activity.  We like investments characterized by stable and inflation-adjusted cash flows, like highway tolls, roads and airport constructions.

• Financials:

Based on the outcome of the US elections, we expect a move in the financial sector.  Lifting financial regulations from the banking industry is likely to generate strong returns associated with a positive performance of the sector; while imposing more regulatory pressures is likely to achieve the opposite outcome. Based on our main scenario, we expect a positive performance of the financials in 2016. That performance is likely to support growth also in other sectors including the ones we have mentioned above.

Water: It remains the world’s most important raw material and it is scarce. Increasing population, climate change, pollution and infrastructure degradation – especially in developing countries – make this investment theme particularly attractive, especially for long term investments.

We believe this theme will continue to deliver positive returns and we highly recommend it as a way to diversify your portfolios, since correlations to other assets is almost zero.