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Water scarcity and the “space” economy have emerged as one of UBS’s top five favorite long-term investment themes, with its monthly report highlighting a wide range of ideas influenced by technological advances, resource scarcity and social change.
Water scarcity, diversity and equality, space, food revolution and consumer experience— Alexander Stiehler, thematic head of Long-Term Investments (LTI), said on Friday that the order was “the most compelling investment opportunity right now.” UBS looked at the valuation and momentum indicators driving its LTI theme and identified particularly timely ones.
The report comes as investors appear to have locked in on an artificial intelligence investment trend that has helped push the S&P 500 (SP500) (SPY) (VOO) up 12% year to date, even as AI plays into UBS’s space theme plays an important role.
UBS discusses sectors in this report but does not specify individual stocks or investment vehicles:
water shortage
Estimated +$655B topic size is expected to grow at an average annual mid-single digit rate over the next few years. The largest category is wastewater treatment or water utilities, followed by equipment suppliers for water exploration, distribution and treatment. The UBS strategy team is more optimistic about the U.S. industrial sector (XLI). UBS said the balance between defensive water companies and the cyclical nature of the industry makes the theme a good investment across cycles.
diversity and equality
UBS said the theme is “cross-industry diversification, a good combination of defensive, value and growth styles.” “Several studies have shown that improving diversity can reduce the gap between rich and poor within societies, which, if true, should boost GDP over the next decade,” the report states. In the long term, promoting growth throughout value chains and processes Diverse and equal companies can achieve superior performance, but short-term risks include legal challenges to affirmative action in some U.S. states.
space economy
The momentum is strong and aligns well with UBS’s preference for the Industrials (XLI) sector, particularly aerospace and defense. “Space-based assets and defense technology are increasingly front and center for governments as rising geopolitical tensions highlight the relationship between space economics and security,” the LTI team said.
“In addition, the rapid rise of artificial intelligence provides new opportunities to leverage space-based infrastructure and the ability to synthesize large amounts of satellite data.” Many end markets are “still nascent” and the risks are high.
food revolution
Climate change and other factors pose challenges to access to high-quality, affordable food, requiring supply chain transformation. It sees the “big winners” as digital services, online platforms, and then automation. “This theme aims to profit from the potential of new investments, while combining the defensive characteristics of consumer staples (XLP) and technology (XLK),” UBS said. Investors can also consider venture capital, impact and sustainable investing Strategy.
Consumption experience
Technology and society are the main structural drivers. The main opportunities are concentrated in traditional fields such as travel and leisure, as well as emerging virtual fields such as virtual universes and online activities. “The theme performs well on quality metrics as the company has a strong balance sheet and high ROI, but it trades at a relatively high valuation,” UBS said.
- Industry-focused ETFs include: (VIS), (IYJ), (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).
