Generating a Themed Watchlist

In olden times it was considered bad form to discuss politics and religion in polite conversation. The weather was everyone’s go-to topic. I suppose it was far more likely that people would come to blows debating the abolition of slavery than how sunny it was going to be in the coming days, and whether it would be strong breeze or near gale on the Beaufort Wind Scale.

Global warming has probably encouraged people to talk about ‘Strictly’ rather than the weather, and political correctness has stifled any meaningful frank public debate about most political and socio-political subjects. It’s gotten to the point now where if you suggest we’re having an Indian summer some moron will instantly brand you a ‘racist’. Although it seems no rules apply to predicting the end of the world based on some Bronze Age ramblings.

The weather, and particularly patterns in the weather, can be our friend as investors. I’m going to create a watchlist of possible themes and trade ideas over time and revisit them in the blog posts as we go along.

The (UK) Met Office has published its expectations for climate over the coming years. This is quite possibly gold dust (or should I say diamond dust) to us. The key elements are that the next two years, thanks to El Niño, are likely to be the hottest on record. The caveat though is that Europe is likely to have cooler summers as the rest of the globe heats up.

That’s enough information to start looking at a few trading possibilities. Firstly, as meteorologists will tell you, we know that hotter global temperatures will result in more rain. So straight away I’m thinking insurance claims from floods. There could be a nice play here in UK insurance between those that sign up for Flood Re (the government backed flood reinsurance company) and those that don’t. The scheme has yet to be fully launched, and at present companies are still being encouraged to get involved, so it’s too early to generate a list of companies on each side, but I’m thinking: long those that do, short those that don’t reinsure with Flood Re.

Colder summers in Europe? Well foreign holidays are likely to see growth. We don’t yet know what the price of oil will be over the next couple of years so we’ll have to keep an eye on that, and it may well be that any theme we develop may need to be hedged against changes in oil prices, or perhaps exposed to them as our hedge. Airlines that have a lot of tourist business outside of Europe may do very well. We can also predict that if the Met Office is right then countries in Europe that rely on tourism will have poor GDPs, at least in relative terms, to those that don’t have much reliance on tourism at all.

So now we have our basic themes: flood exposed insurers, travel agencies and airlines that have tourist based business to outside of continental Europe, and countries exposed to tourism versus those that aren’t.