The Most Important Investing Themes of the New Decade

by: Roger Nusbaum

Yesterday as I was doing my Saturday reading and watching various games, I saw an ad on one website touting Two Stocks To Hold Forever! I did not click on the ad so I’m not sure what they were selling, but the concept of forever stocks, or ETFs, is interesting. I don’t really have stock picks to just hand out, but there are some themes or other niches that I think will be crucial over the next decade or even longer.

In a recent interview I pointed out that I think water will be the most important resource-related theme for the next ten years. By now you probably know about the mounting tension between China and India over the possibility that China could dam the Brahmaputra River. Other than Canada (intentional exaggeration) just about every country has potable water issues; in some places this is an extremely serious situation. There are a lot of water ETFs; we have owned the PowerShares Water Portfolio (NASDAQ:PHO) since it listed. At times it has been a great hold and at other times it has not done much. Since its inception, PHO is up 25% versus about 2.5% for the S&P 500.
In terms of countries I think the most important one would be a commodity-based country that is not Brazil or Australia. As investment destinations go, I love both of them and own both for clients, but in terms of likely to be the best performer for a decade, I would think that would be a country that, for now, is not easily accessed or maybe just a little less popular. To go the less popular route, I would look at Chile, South Africa or maybe Peru. There are ETFs for all three and of course individual stocks. In terms of difficult to access commodity countries with this potential, that might include Kazakhstan and Mongolia. There are a few stocks that get you into these countries, more so with Kazakhstan with one example being Kazakhmys (OTCPK:KZMYY) which is primarily listed in London and for Mongolia, South Gobi Resources (OTC:SGQRF) which is dual listed in Hong Kong and Canada. I own SGQRF personally but it is too thin to buy for our clients (until Schwab provides direct access to Hong Kong).
I believe the aging of America is another important theme, but I’ve thought that for a while and generally this has not been much of a home run. We used to own Stryker (NYSE:SYK) which essentially makes replacement parts for people and gurneys that go in ambulances. It did well when we had it but it was not a world beater. We’ve had better luck with Novo Nordisk (NYSE:NVO) which we bought early in 2010. The company is in the insulin business (research yourself for a thorough description). The stats about obesity in the US are all lousy which means good things for many companies, including NVO. Additionally the company gives the portfolio (relative) mega cap exposure to Denmark, which is a country that from the top down is very appealing.
There are many other themes that I think will be very important, but I’ll add one more here because I think my take is unique. China is changing the world, and this will continue. By changing the world I guess I mean, has become much more important to the world economic order. This fact makes China a must follow -- not necessarily a must own, mind you, but anyone running a global portfolio needs to understand China somewhat and have an opinion: in or out. “Out” is valid if it is the product of some analytical process. For some context, where China is concerned I want no part of the financial sector nor do I want to rely on exports to the US.
Over the years we have been in China, then out, then in again, out again and now in part way from our exposure to the Market Vectors Coal ETF (NYSEARCA:KOL) and the iShares Emerging Market Infrastructure ETF (NASDAQ:EMIF) -- coal and infrastructure are two more themes. Another way in that I have found but is too thin for our client base is with the publicly traded toll roads; there appears to be one for each province. The one I favor (personal holding) is Jiangsu Expressway (OTCPK:JEXYY), but if you look that one up on Google Finance you should find most of the others. This has generally offered a smoother ride, been an outperformer (much of the time) and usually pays a healthy dividend. The idea here is that more and more Chinese people are able to buy cars; the improved roadways are making the country smaller. The demand for cars is aspirational and so the demand characteristics are different than for other items. The toll roads benefit from this without forcing you into the auto industry.
The above particular themes may or may not be for you, but one thing that I believe makes sense is that the starting point for all of them is quite simple, and I think simple is better.

Disclosure: I am long PHO, KOL, SGQRF.PK, JEXYY.PK, EMIF, NVO.