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Investment Ideas 2022

USING DISRUPTION TO YOUR ADVANTAGE

Investment returns may increasingly be driven by companies that best respond to technological innovation and other disruptive trends.

The spread of technological innovation, the impact of demographic changes and the increasing focus on sustainability may cut across every sector and geography, transforming industries and forcing investors to think differently about the drivers of corporate and asset performance. 

 

Investment returns may now be driven less by differences between sectors, regions and traditional drivers of the economic cycle. In addition to entrepreneurs founding new companies, a merger and acquisition (M&A) supercycle is underway as large corporations reassess, reimagine and reshape their businesses; we expect continued corporate activity including spinouts, divestitures, joint ventures and new listings, with private equity sponsors playing a larger role in the broader M&A landscape, supported by a growing private credit market.

 

Three investible disruptive trends we are focused on include:

The "techification" of everything, as technological innovation spreads across every sector of the economy. In the financials sector, fintech companies and cryptocurrencies are challenging the traditional business models of banks. Consumer and media industries have been upended by the shift to online shopping, gaming, and social media. The healthcare sector is being transformed by technology while machines are now connected through the internet of things. The metaverse may disrupt the way we interact with the internet itself.

 

Demographic trends that affect consumption and healthcare spending. Millennials—the majority of whom are located in the EMs- are now the largest population group and have the greatest earnings power, both of which will continue to influence global consumption, including investing. Millennials were a big driver of moving consumption and social activity online; they may be equally powerful influencing sustainable consumption and ESG investing. 

 

Decarbonization is one of the most urgent priorities for a sustainable global economy; the process is estimated to require roughly $56 trillion in investment (Exhibit 14). We expect the impact to be greatest in industries including energy, utilities, alternative energy and electrification. In addition to decarbonization, environmental sustainability also includes waste management, water management, biodiversity and the circular economy. Social factors, such as fair and inclusive business practices, are also considered within sustainable investing. We believe all of these factors will increasingly change corporate business models and could transform entire industries.

Exhibit 14: $56tn of investment needed for global Net Zero carbon

Source: Goldman Sachs Global Investment Research. Represents cumulative total figure for global investment by 2050.

              

Investment Ideas to Consider

We believe active thematic investments across public equities and alternatives (especially private equity, growth equity, private credit, infrastructure and real estate) provide investors with direct access to these key secular growth trends. Thematic portfolios have the added potential benefit of a wider opportunity set that is not constrained by region, market capitalization or sector. We are particularly focused on the following areas:

 

Technological Innovation

Technological innovation, which may continue to be a prominent disruptive force as it spreads beyond large cap tech to small cap and outside the US, especially to EMs; as technology is applied to new industries it will create new markets for growth. 

 

Changing Consumer Habits

Changing consumer habits that are being affected dramatically by all of these themes, many of which are playing out in strategies focused on millennials' preference for digital consumption, experiences versus goods and a focus on sustainability.

 

Demand for Health Care

Healthcare demand is accelerating while technology is fueling innovation, bringing down costs and producing better outcomes. We think the greatest potential opportunities are in companies involved in genome sequencing, precision medicine, tech-enabled procedures and digital health care.

 

Sustainability

Sustainability, with a focus on companies providing solutions to environmental issues, such as clean energy, recycling and sustainable consumption, as well as those promoting social considerations, such as diversity and inclusion.

 

Infrastructure and Real Estate

Infrastructure/real estate portfolios house these secular growth trends in specialized real estate: towers and data storage centers directly enable digitization, warehouses and logistics centers support the shift to ecommerce, biotech innovation requires specialized laboratories, and increased media content requires more studio space. In addition, assets related to renewable energy and sustainable food production will support sustainability, as will incorporating more green technology in buildings and operating assets.

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Disruption

Risk Considerations

Equity securities are more volatile than bonds and subject to greater risks. Small and mid-sized company stocks involve greater risks than those customarily associated with larger companies.

Investments in foreign securities entail special risks such as currency, political, economic, and market risks. These risks are heightened in emerging markets.

Hedge funds and other private investment funds (collectively, “Alternative Investments”) are subject to less regulation than other types of pooled investment vehicles such as mutual funds. Alternative Investments may impose significant fees, including incentive fees that are based upon a percentage of the realized and unrealized gains and an individual’s net returns may differ significantly from actual returns. Such fees may offset all or a significant portion of such Alternative Investment’s trading profits. Alternative Investments are not required to provide periodic pricing or valuation information. Investors may have limited rights with respect to their investments, including limited voting rights and participation in the management of such Alternative Investments. 

Alternative Investments often engage in leverage and other investment practices that are extremely speculative and involve a high degree of risk. Such practices may increase the volatility of performance and the risk of investment loss, including the loss of the entire amount that is invested. There may be conflicts of interest relating to the Alternative Investment and its service providers, including Goldman Sachs and its affiliates. Similarly, interests in an Alternative Investment are highly illiquid and generally are not transferable without the consent of the sponsor, and applicable securities and tax laws will limit transfers.

An investment in real estate securities is subject to greater price volatility and the special risks associated with direct ownership of real estate.

Concentration in infrastructure-related securities involves sector risk and concentration risk, particularly greater exposure to adverse economic, regulatory, political, legal, liquidity, and tax risks associated with MLPs and REITs.

An investment in Private Equity is speculative with a substantial risk of loss. An investment in private equities is not suitable for all investors. Investors should carefully review and consider their potential investments, risks, chargers and expenses before investing. Private equity investments are speculative, highly illiquid, involve a high degree of risk, have high fees and expenses that could reduce returns, and subject to the possibility of partial or total loss of capital. They are, therefore, intended for experienced and sophisticated long-term investors who can accept such risks.

Environmental, Social, and Governance (“ESG”) strategies may take risks or eliminate exposures found in other strategies or broad market benchmarks that may cause performance to diverge from the performance of these other strategies or market benchmarks. ESG strategies will be subject to the risks associated with their underlying investments’ asset classes. Further, the demand within certain markets or sectors that an ESG strategy targets may not develop as forecasted or may develop more slowly than anticipated. 

Glossary

CCUS: Carbon capture, utilization and storage.

DACCS: Direct Air Carbon Capture and Sequestration.

EVs: Electric Vehicles

FCEVs: Fuel Cell Electric Vehicles.

Other RES: Other renewable energy sources.

PV: Photovaltaic cells, also known as solar cells.

General Disclosures

The views expressed herein are as December 31, 2021 and subject to change in the future. Individual portfolio management teams for Goldman Sachs Asset Management may have views and opinions and/or make investment decisions that, in certain instances, may not always be consistent with the views and opinions expressed herein.

Views and opinions expressed are for informational purposes only and do not constitute a recommendation by Goldman Sachs Asset Management to buy, sell, or hold any security, they should not be construed as investment advice.

This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice. This material has been prepared by Goldman Sachs Asset Management and is not financial research nor a product of Goldman Sachs Global Investment Research (GIR). It was not prepared in compliance with applicable provisions of law designed to promote the independence of financial analysis and is not subject to a prohibition on trading following the distribution of financial research. The views and opinions expressed may differ from those of Goldman Sachs Global Investment Research or other departments or divisions of Goldman Sachs and its affiliates. Investors are urged to consult with their financial advisors before buying or selling any securities. This information may not be current and Goldman Sachs Asset Management has no obligation to provide any updates or changes.

Economic and market forecasts presented herein reflect a series of assumptions and judgments as of the date of this presentation and are subject to change without notice. These forecasts do not take into account the specific investment objectives, restrictions, tax and financial situation or other needs of any specific client. Actual data will vary and may not be reflected here. These forecasts are subject to high levels of uncertainty that may affect actual performance. Accordingly, these forecasts should be viewed as merely representative of a broad range of possible outcomes. These forecasts are estimated, based on assumptions, and are subject to significant revision and may change materially as economic and market conditions change. Goldman Sachs has no obligation to provide updates or changes to these forecasts. Case studies and examples are for illustrative purposes only.

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Date of First Use: January 12, 2022

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