rethink sustainability
Three important charts for investors this month
Many metrics have been breaking records in 2024. The S&P 500 has been hitting new highs1, temperatures continue to climb2 and the year will become a historic one for elections3, with over 60 countries heading to the ballot box. Investors have a lot to keep an eye on, and our new monthly series will draw attention to some of the trends and scenarios that are informing our thinking.
1. The rise of private assets
The US Federal Reserve revised up its estimate of the ‘neutral’ interest rate in March. This is a trend we see continuing, as geopolitical tensions and competition lead inflation to trend higher. In a changing investment landscape, alternative assets can play an increasingly important diversification role. Private assets are currently benefiting from secular tailwinds, including banks stepping back from some forms of lending and firms staying private for longer. More than half of all US companies with over USD 1 billion in revenue are privately owned, according to estimates from investment data company Preqin.
It forecasts that the private assts industry will grow by 10% a year for the next five years. Private capital remains less than 5% of global financial markets, implying significant scope for expansion. For long-term investors who are willing to forfeit some liquidity and who have an appropriate risk tolerance, we believe private assets can play an important role in diversifying portfolios from publicly-listed assets. A combination of private and liquid assets is key to our new strategic asset allocation and “total wealth” approach.
Read also: Private assets outlook 2024
2. How a change of US government could impact energy transition spending
The US Inflation Reduction Act (IRA) approved an estimated USD 670 billion to boost domestic clean-energy production and manufacturing. But with the energy transition a polarising political issue in the country, this November’s election will impact the policy’s future and the funding it provides. With much of the funding being allocated to Republican states, many believe the IRA will be safe if Donald Trump returns to the White House. However, based on proposed legislation and policy from conservative lawmakers and think tanks, our research4 indicates that a Republican administration with full Congressional support could threaten much of the new funding.
This would likely impact all unallocated funds, as well as funds that have been committed to projects but not yet spent. However, solar technologies may be less impacted as they are already integrated into the energy mix.
Read also: US election scenarios | Investment implications and visit our new Elections page to keep up to date with all our insights into the implications of this busy election year.
3. Advanced economies have cut CO2 emissions from energy back to 1973 levels
Energy emissions in advanced economies have been in “structural decline since 2007”, according to the International Energy Agency.5 They fell by 4.5% in 2023 compared with a year earlier, despite GDP in these countries expanding by 1.7% over the same period. The reason is the rise of renewables, which now make up an unprecedented 34% share of electricity generation in advanced economies. Renewable energy has moved from niche to mainstream. This is not because of ideology, but because of economics. As the economy rewires for renewables, we believe vast new profit pools will surface, often in unexpected places.
Read also: How can AI speed up the decarbonisation of business?
1 S&P 500 closes above key 5,000 level for first time | CNN Business
2 Warmer, wetter, hotter, drier — February caps unending stretch of record temperatures (ft.com)
3 Why 2024 is a record year for elections around the world | World Economic Forum (weforum.org)
4 holistiQ Research (2024). Scenario one represents all estimated tax credit and grant/loan outlays from the IRA in these categories; scenario two has modified estimated outlays for all spending categories to account for the removal of bonus credits, tightening of credit guidance, and reallocation of departmental funding to reduce outlay capacity; scenario three illustrates a repeal scenario as posited under the Limit Save and Grow Act. All scenarios exclude all departmental funding and any funding directed towards sectors not directly connected to the energy transition (e.g, natural resource conservation and ecosystem restoration, climate resilience, drug pricing or Medicare).
5 Major growth of clean energy limited the rise in global emissions in 2023 - News - IEA
Important information
This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter “Lombard Odier”). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document. This document was not prepared by the Financial Research Department of Lombard Odier.
Read more.
share.