Investment Themes for 2022

Our investment themes for 2022 Our two main investment themes for 2022 are: • Inflation, and how we can try to mitigate it for discretionary portfolios through investment in equities, automation and infrastructure • Climate transition, focusing on opportunities in clean energy, sustainable food and electric vehicles. This leaflet explains why we have chosen these themes, and gives a brief overview of how we believe they will influence decisions in the year ahead. You can read more detailed versions of these articles, and supporting articles on the sub-themes underlying them, on our website at canaccordgenuity.com/investment-themes/. Your Canaccord Genuity investment manager will be delighted to discuss any of these topics with you, and explain how they will affect the way we manage our clients’ discretionary portfolios in 2022. Investment themes 2022 1

Beating inflation in 2022 Inflation came back with a vengeance in 2021. Markets fear inflation because central banks can destroy Investors were prepared for the Consumer Price Index to rise investment returns by raising rates to high levels, which may in March-May 2021. What they didn’t expect was the onslaught trigger an economic slump. This time around though, the US of bottlenecks and supply chain issues, as well as product and Federal Reserve (Fed) will be patient with nascent inflation, staff shortages, which relentlessly drove up prices. at least for the next few years. Let’s take them at their word, rather than trying to second-guess them. It started with economic reopening after the COVID-19 The equity plays we mention should be able to cope with lockdowns. Goods, ships, lorries and drivers were stranded in various inflation scenarios, as long as the Fed does not step the wrong places when countries opened up, causing massive on the brakes abruptly to cause a recession. delays, product shortages and inevitably higher prices. Global equities The cost of services we hadn’t used in a long time (such as Data shows us that well-selected global stocks can offer air fares, car rentals, accommodation, restaurants) surged, better protection against inflation than other major asset some of it due to prices collapsing in the previous year. classes over shorter periods. This is partly because many Bottlenecks did not ease quickly, and markets also began to companies increase their prices during inflationary periods worry about the possibility of soaring rents and wages. to maintain earnings, creating a positive relationship The number that matters most for markets is the US Core between company earnings and inflation, which then rise Personal Consumption Expenditures (PCE) Index. It rose to and fall together. Visit canaccordgenuity.com/equities-and- above 4% recently, but it is likely to fall next year, particularly inflation/ to find out more. between March and June, as the comparison with 2021 becomes more favourable – but probably won’t return to Automation and robotics the previous sub-2% levels. It may therefore be consistently We believe robots can support modernisation, increase above the 2% target used by most central banks. efficiency and help solve the worker shortage in key Are equities the best way to beat inflation? industries. They should also reduce the cost of repatriating As inflation looks set to persist in 2022, investors will manufacturing facilities to Western countries from be exploring different options to generate a return on China. Over the past few years, the shortfall in workers investment greater than inflation – otherwise wealth falls has been particularly apparent in three main industries: in real terms. If you leave your money in the bank, you are food and agriculture, manufacturing and healthcare. highly unlikely to get deposit rates that will cover price Is automation the way forward? Read more in our blog rises and beat inflation. Likewise, if you buy fixed interest at canaccordgenuity.com/investing-in-automation securities, where the coupon and the final repayment levels -and-robotics/. are fixed, you may not get your money back in real terms. Infrastructure Commodities generally manage to eke out a positive return We believe the broad sector of infrastructure and after inflation, but it’s not always easy for investors to buy transportation is worth considering for several reasons. petroleum and industrial metals profitably. Infrastructure builds fixed assets that reduce operating Historically, equities have offered the best opportunity costs and offset higher prices, and investments often have for delivering real returns over the long term versus other explicit inflation protection built in. There is also a global major asset classes, but there are still risks for investors. push towards infrastructure spending by governments, Higher inflation tends to reduce share valuations, which and much of the money is directed into areas that are ultimately a calculation of future earnings at today’s are working towards decarbonisation. Learn more at interest rate (if interest rates go up, share values historically canaccordgenuity.com/investing-in-infrastructure/. go down). You can read an expanded version of this article and find out Here at Canaccord, a key investment theme for 2022 more about our views on inflation and its impact in 2022 at: is aiming to protect discretionary portfolios against canaccordgenuity.com/investing-to-beat-inflation/. inflation, and we will try to achieve this by exploring three different equity-based options: global equities, automation and infrastructure. Investment themes 2022 2

Investing in the climate change agenda The urgent hunt for solutions to the climate crisis, where Clean and renewable energy new, increasingly investable industries are disrupting old Sharp falls in the cost of generating wind, solar and other economy stalwarts, makes climate transition a lasting and renewable energies (not to mention nuclear), allied with powerful investment theme for 2022 and beyond. judicious use of government subsidies, have transformed We are not climate scientists or policy makers, and we make the competitiveness of green alternatives to carbon-based no specific predictions here about the future path of the power. This is a trend reinforced by burgeoning concerns climate emergency. We are simply seeking to identify where over air quality in fast-growing and huge emerging value is being created for our clients. markets like India, China and Nigeria. Read our blog at The background canaccordgenuity.com/investing-in-renewable-energy/ to find out more. COP26 in Glasgow was meant to check in on progress Sustainable food production towards the climate change targets set in previous Methane emissions from cows, alongside deforestation conferences, and to keep countries on track in meeting linked to intensive soybean cultivation, are powerful those targets. additives to the greenhouse effect. With more efficient Signed by 180 countries, the earlier Paris Agreement sought plant biotechnology and enormous productivity and to reduce greenhouse gas emissions and limit the global waste management improvements from farm to fork, temperature increase to below 2°C above pre-industrial there is a real prospect of making inroads into this large levels by the year 2100. Ideally, the increases should be kept contributor to global warming. Discover more at to 1.5°C or below. canaccordgenuity.com/investing-in-sustainable- Before the commitments made in Glasgow, base case food-systems/. estimates had global temperatures rising to 2.8°C above Electric vehicles pre-industrial levels, despite all the work done over the In transport, advances in battery technology, software and preceding six years. Even after all the pledges at Glasgow, on power management semiconductors now mean that it is a good outcome we might be looking at 2°C as the base case not just automobiles that are decarbonising, but also trucks, – which is not a good outcome. railways, marine transport and even aeroplanes. Consumer The vast majority of damage to our climate has happened demand is soaring and electric vehicle infrastructure since 1972, when the world’s population was around 3.7 is proliferating, making this a compelling investment billion. Today it is around 7.9 billion, an increase of 114%. theme for 2022 and beyond. Find out why in our blog at At the same time, average real GDP per head has canaccordgenuity.com/investing-in-electric-vehicles/. increased significantly. Combined, energy production, food production and So we have seen a population explosion and have made transport cause nearly two-thirds of greenhouse gas ourselves richer too – and that means making more stuff, emissions. In each case, what makes them particularly which means burning more coal and oil, and creating more timely as investment themes is the rapid development methane. In 1970 global crude oil production was around 40 of technology that replaces traditional, carbon-heavy million barrels per day. Now, without COVID-19, it would be industries with more climate-friendly businesses that could around 100 million barrels per day. generate potentially strong cash flows. Today, of the five or six major sources of greenhouse At the same time, the cost of doing business is set to rise gases, energy production contributes 25%; food, for carbon-intensive industries such as coal mining or oil agriculture and forestry 24%; general industry 21% and production. Many large institutional investors are already transport 14%. Each of these areas is under huge pressure excluding them from portfolios, while banks are withdrawing to reduce their outputs. from financing their activities. Within our climate transition theme, we are looking at We see our three themes as a positive approach to sectors where a combination of rapid technological investing that in the longer term will align good client improvements, cost-effectiveness and increased outcomes with a sustainable future for our planet, our regulation has created a compelling investment case. children and their children. You can read more about these topics at: canaccordgenuity. com/investing-in-climate-change/. Investment themes 2022 3

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