When we look at the magnitude of change that we believe is going to shape the world over the next quarter of a century and beyond, it’s something that we have never seen before . . . If company CEOs don’t get it, they are going to fail. If investors don’t get it, they are going to underperform the market.
- Anthony Ling, Chief Investment Officer, Global Investment Research
Goldman Sachs' Global Investment Research Division believes that global economic realignment has passed the point of no return and that a different investment philosophy is required in order to generate sustained stock market outperformance in the coming decades.
In this May 2010 interview, Anthony Ling, Chief Investment Officer of Global Investment Research, discusses the GS SUSTAIN investment philosophy and the team’s latest work Crossing the Rubicon.
Crossing the Rubicon
GS SUSTAIN’s latest work Crossing the Rubicon lays out a framework enabling investors to identify the most compelling structural winners in our rapidly changing world. The report updates and refines the GS SUSTAIN framework that is now applied to more than 800 stocks in 22 global sectors. With the publication of Rubicon, Goldman Sachs has mapped out a unique approach to consistently and quantitatively identifying structural trends driving global industries and the companies best placed to benefit from them, and to help investors make investment decisions for the long term.
GS SUSTAIN’s view of global economic realignment by the numbers:
- 1.6 billion additional middle class consumers are expected to emerge over the next decade, 90% of whom will be domiciled outside the developed G7 economies
- The combined GDP of the BRICs economies is anticipated to overtake the G7 by 2035
- The number of people outside working age is projected rise by over 20% across the G7 economies
- Debt levels are at multi-decade highs and government spending has risen to 40% of GDP in the G7 economies, more than twice the level of the BRICs countries on average
- While western European countries took 150-200 years to raise GDP per capita from US$1,000 to US$2,000 in real terms, this process took only 40 years in Japan and just over a decade in China
- During the post-war years, the average holding period of US institutional investors reached seven years; that average investment horizon has consistently declined to under a year currently
- Intensifying and more diverse competitive forces are allowing the best positioned companies in each industry to achieve greater rewards and to sustain success for longer; the gap in returns on capital between top and bottom quartile returns on capital has widened by 25% over the last decade
- Understanding which companies are on the right side of that bifurcation is becoming increasingly important to investors as companies with sustainable high returns have consistently delivered equity market outperformance over the last decade
Change is coming: A framework for climate change