Environmental, social, and corporate governance

2020 was a big year for the ESG or sustainable investing theme. Huge amounts of money flowed into stocks and funds that scored well across the three central factors for measuring the sustainability and societal impact of investing. The pandemic’s imminent threat seems to have sharpened focus on longer-term issues like climate change. Questions surrounding the fair treatment of workers, both before and after hiring are growing louder.

There are now requirements for fund managers to disclose how they incorporate ESG factors into their investment decisions. Also, individual companies are starting to report more on how they perform across the environmental, social, and corporate governance axis. ESG investing does appear to be coming of age.

One way to play the ESG trend might be to exclude companies that don’t score well. As examples, think of oil & gas companies that are not transitioning to a renewable future, or perhaps fast fashion companies that score poorly for sustainability. Trying to buy companies that do well on ESG measures is the more obvious path. However, defining what falls under the umbrella of ESG and how to score companies is tricky. Instead, I prefer to buy sustainable funds, that have the resources and expertise to develop a robust framework for selecting ethical investments, to play this trend. As examples, Royal London Sustainable leaders and Liontrust Sustainable Future Growth are two funds that have performed strongly over the last 10 years.

5G investment theme

The fifth-generation (5G) technology standard for broadband cellular networks means faster mobile (wireless) data speeds and greater capacity. Buying into telecommunications stocks might seem like the natural way to play the 5G investment theme. I am not so sure.

The most bandwidth-taxing activities of your average mobile network Internet connection user are streaming music and video. 4G is enough for the average user for now. The average user will likely transition to 5G-capable devices when they need to upgrade their mobile phone, rather than because they want a 5G device. Yet Telecoms companies have, and will continue to bid for 5G bandwidth in auctions. They have to do this to stay with the rest of the pack.

But, for some users now and an increasing number in the future, 5G does enable mobile online gaming, connected devices, crystal clear video conferencing from anywhere and augmented reality. I prefer to play the 5G trend by focusing on companies serving customers who want 5G right now.

IQE makes compound semiconductor wafers that end up in integrated circuits. It sees market growth opportunities in 5G handset applications and 5G infrastructure. Concurrent Technologies makes embedded computer products for use in many applications. Communications with and between embedded devices is something that 5G is beneficial for. Smart cities and homes, or the Internet of Things will rely on embedded devices and speedy communication between them. Spirent Communications helps businesses develop and test their 5G networks and 5G capable devices, among other things. 

This is how I would look to play the 5G investment trend: looking for companies that benefit from incremental adoption of 5G technologies.

The post I’m looking at these investment themes to build wealth in 2021 appeared first on The Motley Fool UK.

More reading

• Down 36% in 5 years, will the Greggs share price ever recover?
• How Microsoft’s strong earnings affect the wider stock market
• Up 11% today, could the Magnum Ice Cream share price be an overlooked bargain?
• As Endeavour Mining shares jump 7% on Q1 results, is this a way into the gold rush?
• £5,000 invested in this red hot FTSE 250 growth stock last month is now worth…

James J. McCombie owns shares in Spirent Communications. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Why many investors like Aveva 

There is more than one reason why an investor may think the Aveva share price looks tempting. For one thing, there is its history. Aveva shares have roughly doubled over the last five years. They have almost quadrupled since 2010 and have increased approximately 40-fold since its stock market debut in 1997.

Other investors may be attracted by Aveva’s impressive balance sheet. The company’s assets are worth almost four times the value of liabilities, and current assets are worth only slightly less than total liabilities.

Other investors may like the latest annual report. In the year ended March 2020, revenue was up 8.8%. Profit before tax increased by 97%. Others may see the recent fall in its share price as suggesting it’s good value. And others may look at the dividend. Yield is around 1.1%, which may not seem unusually high, but that is a pretty good yield for a stock that performed so well. 

All of the above represent good reasons to look closely at the Aveva share price. I have another rationale for liking the stock, however. 

Why I like Aveva shares 

For investors. Aveva’s appeal lies with the word ‘digitisation’. As its CEO Craig Hayman, recently said: “We are focused on being digital in everything that we do”.

We live in unusually uncertain times. No one knows how the economy will perform once the Covid-19 pandemic finally comes to an end. Even so, I think it is a pretty good bet that we will see business and industry accelerate its adoption of digital technologies, such as AI, remote collaboration tools, and the so-called internet of things (IoT). The digital economy that has been emerging during the crisis is here to stay.

Aveva helps make that digital economy happen. It is in the business of creating industrial software and providing cloud services, and the industrial IoT is fundamental to its business model.

Critics warn that Aveva is too focused on the oil and gas sector. This sector has taken a big hit because of Covid-19. Supporters respond by saying that since its recent acquisition of Schneider Electric’s industrial software business, it has become more diverse.

Indeed, in its latest report, the company emphasised how it is growing in new markets. These markets include water & wastewater utilities, power utilities, facility and campus managers, transportation operators, and data centres.

More to the point, its technology is supporting the evolution of smart cities, one of the cornerstones of the digital economy. For example, Aveva is helping create smart energy grids.

Expertise applies across sectors 

The core strength of this company is its expertise. Industrial software and the industrial IoT are going to be significant growth areas in the digital economy. Aveva’s historical focus in oil and gas was the means by which it created expertise. Now its inherent technical strength can be applied to multiple sectors worldwide.

That is why I think that the Aveva share price is going to continue where it left off at the beginning of this year, and grow impressively year in, year out.

The post If you want to invest in the digital economy then Aveva shares are just the ticket appeared first on The Motley Fool UK.

More reading

• Down 36% in 5 years, will the Greggs share price ever recover?
• How Microsoft’s strong earnings affect the wider stock market
• Up 11% today, could the Magnum Ice Cream share price be an overlooked bargain?
• As Endeavour Mining shares jump 7% on Q1 results, is this a way into the gold rush?
• £5,000 invested in this red hot FTSE 250 growth stock last month is now worth…

Michael Baxter has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.