By Benjamin Davis, CEO of Octopus Investments
There are many emerging opportunities for investors to be excited about in 2024, but some shine brighter than others.
These five themes upstage the rest as some of the most appealing opportunities on the market at present, and investors could benefit from keeping an eye on them as they take off in the coming year.
Alternatives 2.0
We have seen significant capital inflows into alternative asset classes such as private credit and real estate over the past few years, but in an increasingly competitive space, managers have to do more to set themselves apart from the crowd.
Moreover, with interest rates likely to remain high versus historic numbers, we expect investors will be interested in alternatives where active management can produce sufficient alpha.
We have to continue looking for these opportunities in emerging areas. They may be more difficult and complicated to invest in, but this is where managers will really earn their stripes.
What starts as alternative can become mainstream in time, so it is about finding tomorrow’s sectors today. I expect the best managers will be those who use this year to innovate and unearth new areas in alternative parts of the market.
Natural capital – the next big thing
Natural capital stands out as one of these exciting spaces of opportunity for the year ahead, and was a big area of focus at the recent COP28. It involves applying an economic lens to the natural environment. For example, natural capital looks at how land can be repurposed to provide a return to investors while also removing carbon from the atmosphere or increasing biodiversity.
These solutions will take time to develop, but parts of natural capital are coming out of its nascence stage and have become mature enough to be considered investable. We are seeing this interest already from institutional investors seeking strategies that can show a tangible impact as we near closer to 2030 net zero targets, and from retail investors who are increasingly looking for strategies that match their values.
This year will be the year that we see less talk and more walk in this space – where we will see more investment strategies that deliver for investors and the environment alike.
Unlocking regional potential
Not only are investors looking for strategies that match their values, they are also interested in the local impact their money can make. If you pair this with the growing opportunity to unlock investment opportunities that addresses inequality, I think we will see a lot more businesses beginning to explore more regional strategies this year.
Sustainable infrastructure could be one of these strategies given how it could be the backbone for a new wave of green jobs across the country. The social impact of this infrastructure is fully aligned with its financial returns – the more households and businesses that benefit from using this sustainable infrastructure, the higher returns it will generate.
In the longer term, I am excited to see how the industry can crack the economics of regionally-focused investment in a way that is truly holistic. Unleashing a region’s economic potential, for example, typically requires investments in housing, infrastructure and SME growth all at the same time. We acknowledge that tackling society’s biggest challenges will clearly require co-ordinated investments across a wide range of sectors, so any progress on this next year will be a helpful development.
A resurgence in the UK
The UK has been out of favour with investors, but we are now seeing signs of a welcomed recovery. Interest rates appear to have stabilised, inflation seems to have peaked and the AIM market has bounced back in the last couple of months.
Investing in the UK currently has a lot of upside having gone through a period of significant discounts. It is a buyer’s market with strong businesses at attractive prices and growing M&A activity as a result. This makes me cautiously optimistic about the UK when I look to 2024.
We also have the Mansion House reforms, and anything that encourages investment into early-stage companies and keep capital flowing in the UK is positive. One of my main concerns is restoring stability and confidence in the UK economy, but we are definitely seeing an improvement there, which makes me optimistic that the future is brighter.
Out-behaving companies
We also expect more financial services companies start the journey to become B Corporations this year. These are businesses that present high standards of social and environmental performance, transparency and accountability.
We have always known that people want to buy from and work for companies that ‘out-behave’ and do the right thing, even when no one is watching. We believe that, in turn, it leads to better performance.
For us, being a B Corp crystalises a commitment to a wider base of stakeholders in a very real and tangible way that is very hard to fake. It helps build trust with customers and resonates well with investors.
Financial services is an industry that influences society, both in terms of customers and in deciding where money is directed and how effectively it is used. The industry has an enormous impact on people’s lives and the planet, so companies have a duty to look after both these things. This is why we should be encouraging frameworks like B Corp to drive better, more transparent business practises.
