If you think about it, investing over the past decade has been rather easy.
Interest rates have been low, which is usually bullish for equities. Companies have used technology to squeeze out costs and pad their profits and valuation multiples. The U.S. economy has been a job creating machine post Great Recession. More often than not given this favorable backdrop, picking a successful investment has boiled down to wagering on fast-growing companies (see the ‘FAANG’ cohort), potential takeover targets or identifying compelling turnaround stories.
Most strategists on Wall Street think the next decade will be tougher for investors though, but not without solid opportunities to make money. Consider this: investment bank UBS points out that over the next decade 790 million people worldwide will move into cities. That could spur strong demand for everything from Starbucks coffee in second tier cities in China to Uber rides in New York City.
UBS adds that the number of internet users will rise to 7.5 billion from 4.3 billion, potentially creating attractive opportunities to invest in 5G companies such as Verizon (Yahoo Finance’s parent company) and cloud computing providers Microsoft and Amazon.
Meanwhile, the strategists at Bank of America Merrill Lynch highlight several interesting trends for investors to ponder looking out to 2030.
BAML notes recession risk is on the rise given we are late cycle in the U.S. economic growth story. That could lead to winners in real assets and infrastructure as governments spend more to ignite growth. Losers during a recession would be growth stocks, BAML surmises.
BAML also thinks up to 50% of jobs are at risk of automation by 2035. Winners in this movement include big data and AI companies. Besides humans losing, those with subpar supply chains could underperform amid this major tech shift.
Space is another possible opportunity — BAML thinks the space market could be worth $1 trillion by 2030.
No wonder Richard Branson’s Virgin Galactic recently went public and fellow billionaires Elon Musk, Tesla CEO, and Jeff Bezos, Amazon CEO, are all in on space.
Here is what several Wall Street pros have told Yahoo Finance about investing for the next decade.
Keith Lerner, chief market strategist at SunTrust
“We do long-term capital market assumptions based on 10 years and we always talk to our clients about the next five to 10 years. As we are thinking about the next 10 years, we are thinking global equity returns probably in the 6% to 7% range. A balanced portfolio is likely to have lower returns than they have historically [given interest rates]. Infrastructure especially if you have something in Washington where you can finally get some type of bill moved through. I still think technology longer term is going to be a good place. If you look at capital spending is, it’s actually going into software. That will still be positive. But there will also be a lot of cyclical opportunities in value, financials or industrials.”
Ryan Detrick, senior market strategist at LPL Financial
“We don’t quite look out to the next decade, we are looking out 12-18 months. When we are looking at our 2020 outlook, we really continue to like large cap stocks over small cap stocks and also emerging markets. I know emerging markets haven’t done that well this year, but earnings growth for next year is expected to be up double-digits. That’s well above developed markets and what we are seeing here in the United States. Overall, we think there is a lot of time left in this cycle and we will stick with the cyclical themes.”
Martin Franklin, Jarden founder and CEO of J2 Acquisition
Sir Martin E. Franklin is digging infrastructure investing for the next decade. And he is putting his money where his mouth is at.
“Look, you don’t have to be an economist or industrialist to just look at American infrastructure and know that it needs a lot of investment. The U.S. is badly in need of infrastructure improvement,” Franklin said on Yahoo Finance’s The Final Round. Franklin, who founded consumer products conglomerate Jarden and sold it to Newell Rubbermaid in 2015 for $13.2 billion, acquired diversified industrial APi Group in September for about $2.9 billion through his new investment vehicle J2 Acquisition.
APi Group has a range of offerings from oil pipeline contracting to offering fire protection and security services. Franklin believes the business is primed to benefit from a pickup in infrastructure spending.
“So yes, I think it’s [infrastructure] a good long-term play for investors,” Franklin added.
Dan Houston, Principal CEO
“I think we have to always keep balanced portfolios in mind whether it’s stocks, real estate or fixed income and bonds. It’s always a balanced portfolio that wins the race long-term. Trying to pick winners and losers for the next decade or half a decade, I think is a very challenging effort for most Americans and frankly most people around the world. They are looking for balanced portfolios so they can sleep well at night, but also at the same time take on the appropriate amount of risk to ride the wave if you have strong equities performance like we have had these last 10 years.”