hongkongen
Smart investing in smart materials

Smart investing in smart materials

11-12-2017 | Insight

Global megatrends make it more important to invest differently to benefit from opportunities in smart materials, says specialist Pieter Busscher.

Speed read

  • Smart materials include lithium used in electric car batteries
  • Other growth areas are automation, robotics and software
  • Massive new markets await but ESG concerns in some countries

The materials that are replacing increasingly scarce traditional resources represent the future of commodity demand, says Busscher, portfolio manager of the RobecoSAM Smart Materials strategy.

He believes that the ingenious solutions being developed for products such as electric cars will massively impact the demand for traditional commodities such as low-grade steel or oil, while creating vast new markets for minerals such as lithium to make their batteries.

“The British economist Dylan Grice said that going long on commodities is like going short on human ingenuity, and what we’re trying to do here is go long on human ingenuity with smart materials,” Busscher told a recent Sustainability Investing Forum that Robeco jointly hosted with Allianz Global Investors in Brussels.

“If you look at business cycles for traditional resources, you are usually exposed to boom and bust, with limited upside, such as for oil, where we foresee a massive shift towards electric mobility. With smart materials, we’re exposed to the longer-term solutions to resource scarcity. We focus on materials that are competitive and can gain market share from traditional materials.”

Four main clusters

So, what are the new breed of smart materials? Busscher focuses on four main clusters: Advanced Materials and Transformational Materials, and the efficiency gains that come from new Process Technologies and Automation/Robotics.

These include themes such as fiber-lasers, artificial intelligence and 3D printing, plus the software needed to power new technologies and make new products. The market for fiber-lasers, which replace cutting and welding in industrial applications, is expected to almost double in size from about USD 3.5 billion in 2012 to USD 6.5 billion by 2020. They are about 20 times more efficient than conventional lasers and require no maintenance, enabling the production of new materials such as high-strength steel in cars.

Electric vehicles represent perhaps the biggest transformational change in modern industrial production, accounting for 10% of the 80-90 million new vehicles that will be made in 2020. China is the world’s largest market for both supply and demand – partly driven by a need to combat chronic air pollution – with more than 350,000 purchased in 2016, or more than double the number sold in the US. And while there has been much fanfare surrounding Western ‘star names’ like Tesla, its production levels are dwarfed by Chinese carmakers who were responsible for 43% all electric vehicles made in 2017.

The lightweight content of cars is set to rise from 29% to 67%.
Source: McKinsey, RobecoSAM

This has created a whole new market for the minerals used in making electric car batteries, which in the case of a Chevy Bolt or Opel Ampera E contain 53 kilograms of lithium and 24 kg of cobalt. An electric vehicle also needs to be much lighter to maximize its range. Subsequently, the lightweight material content is expected to rise from 29% of an average car to 67% by 2030.

Electric Avenue

“Demand for electric cars can only grow: in Europe, we have some ambitious CO2 emissions targets coming into effect in 2021, while China has a quota of having 10% of electric cars on the roads by 2019,” says Busscher. “We’re seeing countries such as the UK and France banning gasoline engines; Norway is even more aggressive with a 2025 deadline. We may soon be looking at the traditional vehicles market as stranded assets.”

“The subsidies for electric vehicles are receding as the cost of making them has come down, and we’re looking now at a period of 2020-2021 where they will become competitive on a mainstream basis, and will win market share as they get cheaper. We could compare this to the change from horse to car at the beginning of the 20th century.”

Lithium mining areas: some have ESG issues.
Source: Bloomberg.

The lithium demand from transportation is growing at over 30% a year, which has meant a traditionally slow growth industry is now exposed to sustainability issues. Incremental supply is now coming from previously untapped sources in Latin America, while half the world’s cobalt comes from the Democratic Republic of Congo. Problems include environmental damage from mining operations and the waste that it generates, combined with poor or even dangerous working conditions.

“Supply is coming from new geographies that don’t have mining frameworks that are as well established as those traditional mining countries, and that can present some concerns,” says Busscher. “A lot of production growth at the moment is in the so-called lithium triangle between Bolivia, Argentina and Chile, where we’re interacting with the mining companies to make sure standards are met.”

Reinventing commodity markets

Busscher says new materials are slowly reinventing how commodities are valued in markets, making it essential to review investment strategies now. “The traditional approach to investing in materials is to invest directly in commodities or commodity stocks, based on the assumption that with limited supply and increasing demand, the price of commodities should rise,” he says.

“Yet real commodity prices have declined steadily, suggesting that natural resources have not become more scarce in the economic sense of the term. This is because free market forces and human ingenuity have generally led to technological breakthroughs and the development of substitutes that have enabled us to grow despite resource scarcity.”

“We have secular, long-term trends in place that are powered by human’s unique ability to continually innovate. As we deplete our stock of finite resources and environmental issues intensify, banking on human ingenuity is a promising investment approach of the future for the materials sector and beyond.”

Important information

The contents of this document have not been reviewed by the Securities and Futures Commission ("SFC") in Hong Kong. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice. This document has been distributed by Robeco Hong Kong Limited (‘Robeco’). Robeco is regulated by the SFC in Hong Kong.
This document has been prepared on a confidential basis solely for the recipient and is for information purposes only. Any reproduction or distribution of this documentation, in whole or in part, or the disclosure of its contents, without the prior written consent of Robeco, is prohibited. By accepting this documentation, the recipient agrees to the foregoing
This document is intended to provide the reader with information on Robeco’s specific capabilities, but does not constitute a recommendation to buy or sell certain securities or investment products. Investment decisions should only be based on the relevant prospectus and on thorough financial, fiscal and legal advice. Please refer to the relevant offering documents for details including the risk factors before making any investment decisions.
The contents of this document are based upon sources of information believed to be reliable. This document is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation.
Investment Involves risks. Historical returns are provided for illustrative purposes only and do not necessarily reflect Robeco’s expectations for the future. The value of your investments may fluctuate. Past performance is no indication of current or future performance.

Disclaimers

1. General
Please read this information carefully.

This website is prepared and issued by Robeco Hong Kong Limited ("Robeco"), which is a corporation licensed by the Securities and Futures Commission in Hong Kong to engage in Type 1 (dealing in securities); Type 4 (advising in securities) and Type 9 (asset management) regulated activities. This website has not been reviewed by the Securities and Futures Commission or any regulatory authority in Hong Kong.

2. Important risk disclosures
Robeco Capital Growth Funds (“the Funds”) are distinguished by their respective specific investment policies or any other specific features. Please read carefully for the risks of the Funds:

  • Some Funds are subject to investment, market, equities, liquidity, counterparty, securities lending and foreign currency risk and risk associated with investments in small and/or mid-capped companies.
  • Some Funds are subject to the risks of investing in emerging markets which include political, economic, legal, regulatory, market, settlement, execution, counterparty and currency risks.
  • Some Funds may invest in China A shares directly through the Qualified Foreign Institutional Investor (“QFII”) scheme and / or RMB Qualified Foreign Institutional Investor (“RQFII”) scheme and / or Stock Connect programmes which may entail additional clearing and settlement, regulatory, operational, counterparty and liquidity risk.
  • For distributing share classes, some Funds may pay out dividend distributions out of capital. Where distributions are paid out of capital, this amounts to a return or withdrawal of part of your original investment or capital gains attributable to that and may result in an immediate decrease in the net asset value of shares.
  • Some Funds’ investments maybe concentrated in one region / one country / one sector / around one theme and therefore the value of the Fund may be more volatile and may be subject to concentration risk.
  • The risk exists that the quantitative techniques used by some Funds may not work and the Funds’ value may be adversely affected.
  • In addition to investment, market, liquidity, counterparty, securities lending, (reverse) repurchase agreements and foreign currency risk, some Funds are subject to risk associated with fixed income investments like credit risk, interest rate risk, convertible bonds risk, ABS risk and the risk of investments in non-investment grade or unrated securities and the risk of investments made in non-investment grade sovereign securities.
  • Some Funds can use derivatives extensively. Robeco Global Consumer Trends Equities can use derivatives for hedging and efficient portfolio management. Derivatives exposure may involve higher counterparty, liquidity and valuation risks. In adverse situations, the Funds may suffer significant losses (even a total loss of the Funds’ assets) from its derivative usage.
  • Robeco European High Yield Bonds is subject to Eurozone risk.
  • Investors may suffer substantial losses of their investments in the Funds. Investor should not invest in the Funds solely based on the information provided in this document and should read the offering documents (including potential risks involved) for details.

3. Local legal and sales restrictions
The Website is not directed at any person in any jurisdiction where (by reason of that person’s nationality, residence or otherwise) the publication or availability of the Website is prohibited. Persons in respect of whom such prohibitions apply or persons other than those specified above must not access this Website. Persons accessing the Website need to be aware that they are responsible themselves for the compliance with all local rules and regulations. By accessing this Website and any of its pages, you acknowledge your agreement with understanding of the following terms of use and legal information. If you do not agree to the terms and conditions below, do not access this Website or any pages thereof.

The information contained in the Website is being provided for information purposes.

Neither information nor any opinion expressed on the Website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. The information contained in the Website does not constitute investment advice or a recommendation and was prepared without regard to the specific objectives, financial situation or needs of any particular person who may receive it. An investment in a Robeco product should only be made after reading the related legal documents such as management regulations, prospectuses, most recent annual and semi-annual reports, which can be all be obtained free of charge at www.robeco.com/hk/en and at the Robeco Hong Kong office.

4. Use of the Website
The information is based on certain assumptions, information and conditions applicable at a certain time and may be subject to change at any time without notice. Robeco aims to provide accurate, complete and up-to-date information, obtained from sources of information believed to be reliable. Persons accessing the Website are responsible for their choice and use of the information.

5. Investment performance
No assurance can be given that the investment objective of any investment products will be achieved. No representation or promise as to the performance of any investment products or the return on an investment is made. The value of your investments may fluctuate. The value of the assets of Robeco investment products may also fluctuate as a result of the investment policy and/or the developments on the financial markets. Results obtained in the past are no guarantee for the future. Past performance, projection, or forecast included in this Website should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Fund performance figures are based on the month-end trading prices and are calculated on a total return basis with dividends reinvested. Return figures versus the benchmark show the investment management result before management and/or performance fees; the fund returns are with dividends reinvested and based on net asset values with prices and exchange rates of the valuation moment of the benchmark.
Investments involve risks. Past performance is not a guide to future performance. Potential investors should read the terms and conditions contained in the relevant offering documents and in particular the investment policies and the risk factors before any investment decision is made. Investors should ensure they fully understand the risks associated with the fund and should also consider their own investment objective and risk tolerance level. Investors are reminded that the value and income (if any) from shares of the fund may be volatile and could change substantially within a short period of time, and investors may not get back the amount they have invested in the fund. If in doubt, please seek independent financial and professional advice.

6. Third party websites
Following links to any other off-site pages or websites of third parties shall be at the own risk of the person following such link. Robeco has not reviewed any of the websites linked to or referred to by the Website and does not endorse or accept any responsibility for their content nor the products, services or other items offered through them. Robeco shall have no liability for any losses or damages arising from the use of or reliance on the information contained on websites of third parties, including, without limitation, any loss of profit or any other direct or indirect damage.

7. Limitation of liability
Robeco as well as (possible) other suppliers of information to the Website accept no responsibility for the contents of the Website or the information or recommendations contained herein, which moreover may be changed without notice.
Robeco assumes no responsibility for ensuring, and makes no warranty, that the functioning of the Website will be uninterrupted or error-free. Robeco assumes no responsibility for the consequences of e-mail messages regarding a Robeco (transaction) service, which either cannot be received or sent, are damaged, received or sent incorrectly, or not received or sent on time.
Neither will Robeco be liable for any loss or damage that may result from access to and use of the Website.

8. Intellectual property
All copyrights, patents, intellectual and other property, and licenses regarding the information on the Website are held and obtained by Robeco. These rights will not be passed to persons accessing this information.

9. Privacy
Robeco guarantees that the data of persons accessing the Website will be treated confidentially in accordance with prevailing data protection regulations. Such data will not be made available to third parties without the approval of the persons accessing the Website, unless Robeco is legally obliged to do so. Please find more details in our Privacy and Cookie Policy.

10. Applicable law
The Website shall be governed by and construed in accordance with the laws of Hong Kong. All disputes arising out of or in connection with the Website shall be submitted to the exclusive jurisdiction of the courts of Hong Kong. 

Please click “I agree” button if you have read and understood this page and agree to the Disclaimers above and the collection and use of your personal data by Robeco, for the purposes for which such data is collected and used as set out in the Privacy and Cookie Policy, including for the purpose of direct marketing of Robeco products or services. Otherwise, please click “I Disagree” to leave the website.

I Disagree