Investing in the future: what sectors look set to grow?

After what can only be described as a tumultuous year in economic terms, the world is slowly eyeing the possibility of recovery, and hopefully, a return to some degree of normality.

Although the prospects of recovery are currently looking positive, with more and more people returning to work and school each week, the economy has not escaped the events of the last year unscathed. As such, the challenge now is determining which industries and sectors have suffered the most damage, and relatedly, which of these look set to grow.

Given that so many sectors have been put on pause over the last year, there will inevitably be a degree of growth as the economy bounces back from a period of relative dormancy. The more difficult question, however, is determining which of these sectors will experience longer term growth that lasts beyond this initial rebound phase.

Although full recovery looks quite far off at this early stage, we are nevertheless beginning to see subtle signals of what is to come. With that said, there are a number of sectors and industries that have managed to weather the worst of the economic storm over the last year and now look set to experience substantial growth in the coming months.

Consumer discretionary

As a classic cyclical sector of the economy, companies that fall within the broad category of ‘consumer discretionary’ seem to be in line to experience significant growth in the next few months.

Being part of a cyclical sector essentially means that these companies will generally follow the health of the economy. So, for example, when times are good and there is a lot of capital flowing through the economy, which then gets passed on to consumers through wages, these companies will be performing well due to higher consumer sales. If the economy takes a hit, however, consumers will tend to be less inclined to spend the amounts of money that they would when times are good.

The last year has been interesting for these kinds of companies, however, as although many sectors of the economy were forced to a standstill and unemployment rates shot up, discretionary spending did not necessarily go down across the board. Certain types of consumer spending stayed relatively consistent, while others took a massive hit.

For example, the online gambling and casino industry managed to post significant growth rates, with brands like Rizk expanding their operations during this period. The reduced leisure options available since early 2020 has meant that services which are heavily online-weighted, or easily transitioned to such a format – such as the aforementioned casino industry – ultimately found themselves well prepared for such a dramatic change in consumer habits. It’s a strong demonstration that consumer demand for leisure does not fall, it simply adapts.

What we can expect in this sector going forward into 2021 as the economy gets back to full strength, however, is that spending across the consumer discretionary sector will essentially even out. As such, there is a lot of growth potential across this sector.

Consumer staples

If you are looking for a truly resilient, if not recession-proof addition to your portfolio, look no further than consumer staples!

By their very nature, consumer staples are always going to be in demand. These are the goods that we simply can’t live without and we thus tend not to moderate our spending in respect of them, even during periods of recession or downturn. For this reason, companies that produce and distribute consumer staples are likely to prove resistant to even the worst economic storms.

If you are an investor who prefers a more moderate, more risk-averse investment strategy, consumer staples are a good way of bringing some stability to your investment portfolio.

Technology

The technology sector is always an easy choice when it comes to predicting economic growth. The very nature of the industry means that it is always filled with companies that are trying to produce the latest technology or seeking to solve some new technological challenge we are facing. As such, consumer demand will always be high in this sector.

This has certainly proved to be true over the course of the last year, with many tech stocks being remarkably resilient despite the challenging economic conditions.

Tech stocks generally have a moderate to high risk level, but tend to produce higher than average returns in the long run, provided you get in early. Particularly for younger investors – who can typically withstand a higher risk profile – tech stocks have thus been a good addition to their investment portfolios.

For these reasons, investors who are on the more aggressive end of the spectrum will find many investment opportunities in this sector.