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Weekly eLetter 7/20/2018 – Where is the Market Headed?

The idea that uncertainty is back in the markets is probably somewhat of an understatement this year.  Protectionist headlines are whipsawing market values, and individual segments have bounced around even more dramatically. Plenty of investors are a bit testy about this and you can see evidence of that as one tweet by some big name financial analyst or pundit can undercut many ‘perfect’ strategies.

But there are still areas of the markets that are continuing their upward trajectory bravely overcoming the headwinds of the headlines, not to mention the distractions of an over-abundance of political theatre. These areas where we are focused are likely to withstand the winds of noise this year, and for many years into the future. The result, we believe, is to add some stability to portfolios amid the volatility, and also add potential fuel to the growth in the portfolios.

While some of the ideas may take a while to reach fruition, many are currently adding to returns.  Here are a handful of megatrends that we believe will shape the global economy.

E-Commerce: One can always trust the consumer to spend – in good times and bad. And those dollars spent are increasingly moving away from brick and mortar stores and into e-commerce.

The official numbers are in for 2017, and much to my surprise the percentage of shopping done online last year was… (go ahead, take a guess; I’ve had guesses from 25 to 70%) actually 9%.

That’s right! It seems that many consumers don’t even think about going out the door when they — perhaps you — can log on to Amazon (or, increasingly Walmart), complete your purchase in the space of a few minutes and have it delivered for free. Maybe within hours.

That lowly 9% figure totaled over $390 billion last year- and that’s just a start. In some parts of the world e-commerce grew by over 30% last year, and retail sales rose ‘only’ about 7%. We are playing this growth area with equities that focus on buying online, the hardware that is used for online buying, and software that powers mobile payments (It isn’t just Starbucks that takes a mobile payment, anymore!)

Biotechnology: You have probably heard a lot about publicly traded drug stocks, patent expirations and potential regulations, but many companies are focused primarily on researching the next generation of life-saving drugs, using ideas that once were thought of only as science fiction. A lot of the progress has been made possible as the cost of mapping our DNA has dropped dramatically.

Not that many years ago it was considered an impossibility to map a human genome. Then it became possible but at huge costs. We now have biotechnology companies that expect to be able to give you a map of your DNA at a cost of $100 in the near future. The result is that we have companies that are trying to tailor cancer cures to individual patients’ immune systems to fight the disease. There are companies researching techniques such as editing retinal tissue genes to combat childhood blindness.

You can see why the public gets excited about these prospective treatments, and why investors see tremendous profit potential.  Individual biotech companies can be risky of course, as many treatments to not work out. But diversified baskets of biotech stocks are becoming common and can be found in many client portfolios. Wherever the general markets go, biotechs have been mostly climbing.

And, (Attention Boomers!) there is also Gaming: Video games have moved way beyond geeks sitting in their parent’s basement. Gaming is a global phenomenon that knows no age limits and has become a seriously big business sector. The average male video game player in the US is 32 years old, and the average female player is 36. That’s a prime age-range for spending. (And for passing that tradition on to kids!)  Last year saw $36 billion spent on gaming in the US and $108 billion spent worldwide! We are playing this growth strategy by owning baskets of stocks in the companies that create and market games, and also the hardware with which to play the games. You’ve heard the buzz about VR, no doubt. Virtual Reality headsets are adding even more excitement to the gaming world.

– Read more …