Being in the right place at the right time is a way to win the stock market. But with rapid changes facing the markets for 2017 from politics to technology, investors might not be sure where to pick their spots.
But that’s where the brainpower and extensive research of the four panelists on USA TODAY’s 21st annual Investment Roundtable can assist. These investment professionals with decades of collective experience have ferreted through all the themes and trends that will matter next year. Several themes that could very well bring solid returns no matter what happens to the broader markets are where these investors are focused, including:
* Secular growth. The term might sound like jargon, granted, but it was the most recurring theme among the four panelists. Secular growth stocks are those that can grow no matter what curve balls the general stock market or economy throws at the market. Playing secular growth, though, is up to interpretation. Jeff Rottinghaus, portfolio manager of the T. Rowe Price U.S. Large-Cap Core fund sees secular growth companies as those that sell things so critical that demand doesn’t fall even if the market or economy falters. And for him, health care stocks are the classic example. Finding secular growth opportunities around the world, where companies can do well despite the broader economy, will be a critical aspect of portfolio management next year, says Rupal Bhansali, chief investment officer of international and global equities at Ariel Investments. “There are many developments in the world out there … which actually will stand the test of time,” she says. “You’ll decouple your portfolio performance and make it dependent upon these idiosyncratic things that you know you can bank upon.”
Rise of the technology cloud. Corporate investments in Internet-based shared computing resources – commonly called the cloud – will be an important shift. Companies and people are increasingly looking to house data on remote servers to help reduce costs and allow them to access information from anywhere. And the cloud ties into other key developments for investors such as wireless bandwidth and mobile data. Mobile devices are often used to access data on the cloud, allowing data to be available whenever and wherever it’s needed. “It’s hard to have a meeting in Silicon Valley right now where there’s not some sort of discussion of what’s going on with the cloud,” Rottinghaus says. Currently, cloud computing powers 10% of computer workloads. That is going to 95%, says Gavin Baker, portfolio manager of the Fidelity OTC Fund. “It’s better. It’s faster. It’s cheaper,” he says.
* Artificial intelligence. Making computers smarter and able to do more personalized tasks will be a massive theme that will generate returns as it plays out, says Baker. Investing in companies building artificial intelligence, or A.I., systems is the biggest theme in Baker’s portfolio, he says. The trend is being powered by the fact companies have large collections of data that can enable digital decision making. But the proliferation of smart devices is another key development making now the time for A.I. A.I. “is a very profound thing for the whole technology industry,” he says.
* Trump plays. As President-elect Trump takes office, he and the Republican-controlled Congress will likely introduce changes that will steer investment decisions. One of Trump’s biggest proposals is less regulation. “Financials are again big beneficiaries there” from fewer rules especially those connected with how much capital banks must have, says David Kostin, chief U.S. equity strategist at Goldman Sachs. Another winning theme will be U.S. companies paying relatively high tax rates. These companies stand to be more profitable, all things held equal, for just paying lower taxes. “They’re going to go to a lower tax rate, which means that will free up a lot of cash flow that can be used for a different purpose,” Kostin says.
* Connected cars. One theme that pulls together several of the others is the rise of the connected car. Cloud computing will make vast amounts of entertainment and other data available in vehicles on the move. Artificial intelligence will kick in with self-driving vehicles being the most high profile example. Meanwhile, software and auto component makers will see such strong demand they could be insulated from the vagaries of the economy.
The bottom line? Making money in 2017 will be about profiting from the new currency: Innovation, be that in the cloud or in the car in ways that fit with the new adminstration’s rules. “Innovation is nothing but a version of intellectual property,” says Bhansali. “There are ways in which to participate in these developments.”