Sheldon MacDonald, CFA Deputy Chief Investment Officer at Architas
What is a megatrend? In this article we find out what they are and what they mean for investors, before examining five megatrends identified in a recent piece of research by BlackRock.
What is a megatrend?
Megatrends are powerful changes that are expected to cause big structural shifts in the global economy over the next 10 to 20 years. They will create new opportunities and challenges, affecting everything from our governments’ priorities to the way we do business and how we spend money. Importantly, megatrends aren’t static – they evolve over time and manifest in different ways across the globe.
What do megatrends have to do with investing?
In simple terms, long-term investing is all about identifying companies or assets that will be worth more money in the future than they are today. One way to identify such assets is to look at the themes or trends that are changing society and picking the companies, sectors or countries that stand to benefit from these.
The five megatrends
BlackRock recently identified the five megatrends that they believe are most likely to shape society in the near future. Here, we look at them in more detail.
Hundreds of new cities have sprung up in the last few decades, and hundreds more are expected over the next few. Every new city requires infrastructure – from transport and communication networks to housing and schools.
With dense populations, new cities can also serve as launchpads for young, rapidly growing businesses. Understanding these requirements and opportunities can help investors to identify new sources of growth.
Climate change and resource scarcity
Our growing population means a greater need for energy, food and raw materials while our natural resources are dwindling. We must therefore improve efficiency, reduce waste and seek alternative resources.
Hand-in-hand with this is the issue of climate change. It has become a big part of the public agenda – we just need to look at the backlash over single-use plastic or the increasing prevalence of renewable energy and plant-based diets.
Demographic and social change
Many countries have ageing populations, and this is expected to become more prevalent in the future. This shift will not only affect how our workforce earns a living, but will also increase the focus on healthcare for both individuals and governments.
At the other end of the spectrum, the younger generations are growing up with vastly different priorities to their parents and grandparents. This affects everything from what they eat and how they travel to where they invest their savings.
Emerging global wealth
There is a growing middle class in many emerging economies. A great example is China – the country is expected to add 1 billion people to the global middle class between 2005 and 2030.
Another is India, where the workforce is expanding rapidly. Both countries and many others offer big opportunities for global and local suppliers of consumer goods, telecoms and healthcare services to name but a few.
Technology is integral to each of these megatrends, but it’s a trend in itself too. The likes of 5G connectivity and artificial intelligence have the power to innovate and disrupt industries and societies across the globe.
Technological advances can create plenty of opportunities, but also challenges. For example, what happens to a workforce if it’s replaced by robots?
Can you invest in megatrends with Architas?
Our funds of funds spread clients’ money across many different fund managers, each with their own unique investment philosophies and processes.
Some of them consider megatrends like these when making investment decisions. They identify those companies, industries or countries that should benefit from these trends over the long term. Other fund managers take contrarian approaches – for example, looking for companies that are currently out of favour and have discounted share prices. And some fund managers take a completely different approach altogether.
Our investment team meets hundreds of fund managers every year. Not only do they analyse their performance, they also speak to them at length about their investment philosophy and expectations for the future. This information helps them to create portfolios containing the right mix of underlying funds that they believe are most likely to help our clients achieve their financial goals.
For more information, call us on 020 7562 4900; Monday to Friday 9.00am – 5.00pm, calls may be recorded, or visit architas.com.
This Financial Promotion is issued by Architas. This is for professional clients only and should not be issued to or relied upon by retail clients.
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