The Rise of Wealth-to-GDP

Too many people spend money they earned to buy things they don't want to impress people they don't like.

Our megatrend approach in 30 seconds

We have a long and proud history of investing thematically and believe you can remove a great deal of volatility in your portfolio, if you do so. In simple terms, the climate is changing, whether the rate of inflation is 1%, 5% or 10%. If you go to our website and click on Thematic, this image will pop up:

Exhibit 1: Seven megatrends as identified by Absolute Return Partners
Source: Absolute Return Partners LLP

The aggregate result

As you can see, we have identified seven megatrends which, between them, drive our investment strategy. At the bottom of the chart, we have listed another one – Mean Reversion of Wealth-to-GDP – however, this is not a megatrend, but what we consider the aggregate result of the seven megatrends in question.

Wealth has grown excessively all over the world for the past 30 years or so. Apart from causing significant social problems (look at megatrend #3 above), wealth cannot grow faster than GDP in the long run. There are some very well-defined, mathematical reasons why the two cannot outgrow each other, and it works both ways, but I shall not go into any detail this month why that is, as it is a lengthy and rather complex issue. Suffice to say, over the last 2-300 years, or as far back as the data allows us to go, every time wealth-to-GDP has deviated much from its long-term mean value, it has reverted to the mean. There is not a single exception to that rule.