How to capture the opportunity in global equities in 2024 and beyond

No matter what year or what decade, there is always much complexity to navigate as investors. It is often easy to see the challenges and difficulties in markets and to comment on these. 

Instead, I hope to remind, as the year closes, that there is much to be thankful for and, as we look ahead, this leads us to great investment opportunities.

The past two years have been about navigating the exit from the pandemic as prior trends in commerce, significantly disrupted by pandemic-related changes, have slowly and largely re-established. There were many learnings from the actions of governments, businesses and consumers, and some modified behaviours will remain. The period of interruption and adaptation fed our innovative desires, and we anticipate that, through this, humanity will reap benefits for years to come.

It has been evident to us, as we listen to our investee companies, that the challenges of the past few years were seized by some to build resilience while seeking out where the opportunities were evolving. They are looking at where the puck is going. Much of this involves ways to work smarter – more productivity, more efficacy and enhanced safety. It has also seen the dawning of the integration of generative artificial intelligence into workflows that enable new revenue opportunities and expanding markets. 

At the heart of these leading companies is excellence in both innovation and execution, from a position of existing strength.

Three important areas where we are witnessing these innovations rapidly evolving are healthcare, the energy transition and, the broadest of all, digitalisation – using the digitisation of physical things to then transform processes. The latter essentially means information becomes ever more computer-readable, so the information stored in data can be connected seamlessly and will significantly improve many industries through the 2020s.

An easy example of the huge potential of digitalisation is being enabled by Intercontinental Exchange (NASDAQ: ICE). Here, the archaic and profoundly disjointed and manual processes to write a mortgage that still exist today will be replaced with seamless linkages of data – from the information proving a mortgagee’s ability to service a loan, property values, tax and other payments to bank mortgage offers and so on – to create a simple, fast solution.

The second area is healthcare and an example company we own is Stryker Corporation (NASDAQ: SYK), a highly innovative med-tech company that makes medical equipment and devices to improve surgeries. A promising array of product innovations is being unleashed, held back by the pandemic period when hospital visits (and budgets) for both elective and non-elective surgeries were severely reduced (to avoid Covid risks and to keep beds free for Covid patients). Incorporating machine learning and artificial intelligence with robotics means surgeons will be able to perform operations with less risk and greater accuracy, and thus also see faster patient recoveries. Elsewhere, we already know a ‘one size fits all’ approach to healthcare is suboptimal. The rich health data of individuals captured by health insurers will ultimately provide a means, using Gen AI, to improve health outcomes as the uniqueness of each human can be brought to bear through personalised treatments.

Finally, rapid innovation is required to transition energy towards zero carbon with the use of AI and machine learning likely to accelerate progress. This is among the holy grail of investment opportunities in the coming decade. One less obvious example in the energy transition is demonstrated by the work of one of our investee companies, Republic Services (NASDAQ: RSG). It is pushing forward innovation in recycling plastics and building a network of polymer centres. Consumer companies like Nestlé and Coca-Cola are clamouring for a source of recycled packaging materials, and this means businesses like Republic can take waste products and turn them into a new revenue source.

There are other even more obvious examples of innovation by our investee companies, and in each case we believe they are superbly positioned to proactively lead change that will transform our world. Microsoft (NASDAQ: MSFT) has a deeply embedded enterprise network that, alongside OpenAI, will bring Generative AI to the workplace of the future. Ongoing progress will lead to the scale of this opportunity to be enumerated by analysts and investors with time. Companies like SAP (NASDAQ: SAP), Intuit (NASDAQ: INTU) and Salesforce (NASDAQ: CRM) are similarly seeing expanding opportunities as each company leverages its competitive advantages in enterprise software verticals with deeply imbedded usage and unique datasets to draw upon. ASML (NASDAQ: ASML) continues to innovate from its leading position in lithography equipment for production of advanced semiconductors, a market set to expand materially in the years ahead.

Capturing the innovation super cycle emerging in the 2020s will drive strong investor returns.

There are various ways investors could do this, including through investing in private equity or credit classes, in early-stage companies challenging the status quo (some of whom will fail), or through truly advantaged global companies that are scaled and yet still growing strongly while delivering excellent returns on invested capital. 

At Magellan, we focus on the last bucket, where quality is proven and risks of failure are materially diminished. We select portfolio holdings from our carefully curated universe of quality companies, with an aim to deliver wealth creation while minimising the risk of capital loss for our clients.