Citi Global Wealth UNSToPPABLe TreNDS | | 52 Investments The world economy routinely faces minor G2 POLARIZATION examines the the greatest risk of all for investors is having disasters and disappointments, with multiple consequences of the increasing economic and insufficient exposure to unstoppable trends and conflict zones at any one time. Economic geopolitical rivalry between the G2 powers of too much exposure to areas most vulnerable to setbacks and recoveries are routine. So are China and the US. disruption by these forces. bull and bear market excesses of panic and euphoria. In this environment, it is all too easy GREENING THE WORLD sets out the need for a One way to illustrate this is to consider the to get distracted by developments that seem transition to a more sustainable existence across outcome of two different portfolios. For newsworthy but have little lasting significance. multiple spheres while still delivering continuity illustrative purposes, imagine an investor The challenge for us as investors is to try to rise of existing energy supplies. with perfect insight into the near future. They above the din and focus instead upon the forces foresaw the tech collapse of early 2000 and INCREASING LONGEVITY explores how the “cashed out” of a 100% US equity portfolio with the greatest potential to drive long-term aging of the world’s population will impact economic growth and portfolio performance. after five years of 29% average returns and future growth and consumption patterns, with never reinvested, preferring to sit in interest- An unstoppable trend is a major, multi-year an emphasis on healthcare. bearing cash. Now consider another investor phenomenon that is likely to transform the In Outlook 2023, we update and reemphasize with the same portfolio who remained invested world around us. These trends take many forms, our case for these unstoppable trends. This throughout the 78% collapse of Nasdaq from including technological advances, demographic reflects ongoing advances in many of the 2000–2002, the 49% drop in the S&P 500 developments and new behaviors. They often sectors with exposure to these trends. We also during 2008/2009 and 2022’s double-digit seem relatively slow moving, although they tend acknowledge the falling asset price values loss. In this example, the investor who suffered to accelerate over time. Unstoppable trends’ associated with these trends in 2022, such as in the largest market losses in modern times but effects present a fundamental challenge or digitization and renewable energy. In Outlook stayed invested would today have nearly three threat to the status quo, ultimately impacting 2021, we noted that their strong performance times the level of inflation-adjusted wealth every industry and every investment portfolio. had left valuations high and that an unwinding than the market timer who dodged the great of market distortions was likely as the pandemic decline but missed the rebound - FIGURE 1. In recent years, we have made the case for This illustrates the potential value of long-term allocating to a variety of unstoppable trends: subsided. The rising interest rates that have accompanied COVID’s retreat have helped to investing in economic development. DIGITIZATION addresses how digital realize our expectations. technologies are fundamentally changing almost every industry and human activity, increasing As this experience highlights, investing in efficiency and convenience, and creating unstoppable trends comes with risks. And should possibilities that did not previously exist. interest rate rises continue for longer than we believe likely, related investments could suffer further downside. However, we believe that