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Investment Themes

In England, an inventor is regarded almost as a crazy man, and in too many instances, invention ends in disappointment and poverty. In America, an inventor is honoured, help is forthcoming, and the exercise of ingenuity, the application of science to the work of man, is there the shortest road to wealth.
Oscar Wilde

Our long-term investment themes

Click on a Theme to find out more about it.

Mean reversion of wealth

Asset prices have grown much faster than GDP for many years but, in the very long run, one cannot outgrow the other. This is embedded in economic growth theory, which dictates that national income is shared between capital and labour in a certain way. The ratio is not exactly the same from country to country (it depends on the efficiency of capital), but in most countries about 2/3 of national income goes towards labour and 1/3 to capital.

One implication of this is that wealth-to-GDP is also long term stable. In the US the mean over the last 150+ years is about 3.5x. At present wealth-to-GDP is 4.85x, suggesting that US wealth will fall dramatically in the years to come. In Europe, the picture is not quite so bad, but overvaluation still exists.

The three asset classes most likely to be affected by this are (in no particular order) bonds, equities and property. We have absolutely no idea when debt-to-GDP will begin to mean-revert, but a cautious approach is warranted.