100 years doesn’t sound like a lot – it’s a single lifetime for a lucky few. However, the world has changed a huge amount over the past century. In the early 1900s virtually no one had driven a car, listened to music on the radio, seen a film or watched TV. Fast forward to the current day and it’s possible to fly from London to New York in under 8 hours; film a movie on a smartphone; and use Google MapsTM to view your street from outer space.
Companies that thrived in the early 1900s are those that manufactured the goods people needed at that time, or the means to transport them. Railroads, textiles, iron, coal and steel were dominant areas born of the innovations surrounding the Industrial Revolution. Companies that produced horse-drawn carriages and wagons, canal boats, steam locomotives and candles were viewed as stable businesses that would forevermore benefit from a steady demand for their products.
Yet these dominant industries of the 1900s barely exist today.
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Alongside the profound changes to how people live and work, the goods and services they buy have also changed. Despite the claims I make to my partner, candles are no longer a necessity. Instead, technology, healthcare and oil & gas are king.
This shift in dominance is apparent from the composition of the global stock market over time. At the start of the 20th century, railroads, for example, accounted for 63% of the US stock market and 50% of the UK. Today, they represent less than 1% of the US and close to nothing in the UK. Meanwhile, technology, which was absent from the US in 1900, forms 21% of the index today and in the UK, oil & gas has grown from nothing to around 12% of the index.
The countries featured most highly on the global stage have also changed dramatically over time. While the US is currently more than half of the global index, it accounted for only 15% in 1899. At that time, the UK was the largest constituent at 25%, a far cry from its 6.2% today. Also of note is Japan’s rise and fall. At its peak, in early 1990, Japan accounted for almost 45% of the world index. Its poor performance since then means it only accounts for 8.4% today.
The lesson for investors
History shows the dominant players don’t remain dominant forever. The lesson investors should take from this is to look to the future - invest in areas that are yet to have their time in the sun. One area we believe shows promise is Asia and the emerging markets.
Emerging markets still make up less than 10% of the global stock market and Asia accounts for a similar amount. We believe this area will form a much larger proportion of global stock markets in the future and more adventurous investors could be rewarded with excellent returns over the long term.
With lower levels of debt than most Western economies, rising domestic consumption and a growing middle class, in our view they are well placed to grow strongly.
The Stewart Investors Asia Pacific Leaders Fund is one of our favoured funds for exposure to this area.
The managers focus on high-quality companies with strong balance sheets and robust cash flows, run by trustworthy management teams, which they believe can survive tougher times as well as thrive during the good times.
With around half the fund invested in Asian emerging markets and half in developed Asian markets, like Taiwan and Singapore, we believe the fund is well positioned to benefit from growth in this dynamic but higher-risk region. Like all stock market investments it can fall as well as rise in value so you could get back less than you invest.
David Gait, Sashi Reddy and the team at Stewart Investors (formerly First State) have built one of the most successful stock-picking records we’ve ever seen – not only among funds investing in Asia, but anywhere in the world. Our analysis shows they have been successful in picking stocks regardless of their size, sector or location. Past performance is not a guide to future returns.
This article is not personal advice. If you are unsure of the suitability of any investment please contact us for advice.
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|Stewart Investors Asia Pacific Leaders||17.5%||-9.6%||29.3%||-4.6%||26.1%|
Past performance is not a guide to future returns.