THEMATIC

Megatrends: An index approach to thematic investing

Find out about an index approach to thematic investing and how to implement within your portfolio.

Rob Powell
Rob Powell, CFA
Equity Product Strategist, iShares Investment Strategy & Insights

Key points

  • Megatrends are global economic, social and demographical shifts that can have a major influence on our everyday lives.
  • BlackRock has established a list of five major megatrends.
  • We believe these are likely to shape our global economic, political and social landscape in the years to come.

What are megatrends?

Megatrends – powerful, transformative forces that could change the global economy, business and society – have the potential to affect all of our personal lives and influence the outcome of our investment decisions.

Some megatrends have been with us for many years; others are at an earlier stage in terms of their impact on the world.

Cynics might dismiss megatrends as the stuff of think tanks and policy makers. We, however, believe that the use of megatrends in investment processes offers real investment opportunities and the potential for attractive risk and return profiles.

In this article, we will highlight five key megatrends, outline how those megatrends relate to four investment themes, and explore how you might implement the investment themes we have identified in the context of a portfolio.

Capital at risk. All financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed.

 

Hand iconClick below to explore the themes
Changing
economic power
Climate change and
resource scarcity
Demographics and
social change
Technological
breakthrough
Rapid
urbanisation
 X 
1Changing economic power
The growing economic strength of emerging economies, such as China and India, is changing the balance of power in the global economy. In the February 2015 report, The World in 2050, PwC predicts that, by 2050, seven out of ten of the world’s biggest economies will be emerging economies.
2Climate change and resource scarcity
An expanding global population is increasing the demand for energy, food and water, putting pressure on finite global resources. Demand for fossil fuels, in particular, leads to higher carbon emissions and a more volatile world climate. The United Nations World Water Development Report 2014 estimates that global energy demand will increase by one-third over the period to 2035, with the majority of that demand coming from China, India and the Middle East.
3Demographics and social change
The increasing age and size of the world’s population is fundamentally changing the needs of its inhabitants. In the 2015 revision to its World Population Prospects report, The UN Population Division expects there will be an additional 1.2 billion people on the planet by 2030. However, the distribution of those one billion people will not be equal across age groups or regions – 30% of the increase is predicted to consist of those aged 65 or over; by 2050, 50% of population growth overall is likely to come from Africa.
4Technological breakthrough
We are in the midst of a technological revolution that is having a profound impact on the global economy, the extent of which is yet to be truly understood. Technology can create significant disinflationary pressures, increase price discovery, reduce labour costs and create operational efficiencies. It also differentiates losers and winners and encourages the formation of asset-light businesses with low overheads. According to PwC analysis of Facebook data from 2014, if Facebook were a country, it would be the second most populous in the world (after China).
5Rapid urbanisation
In a 2012 report, the UN Population Division predicted that by 2030 almost two-thirds of the world’s population will reside in cities. As strong population growth puts increasing pressure on the infrastructure and social welfare of cities, its forecast that New York, Beijing, Shanghai and London alone will need $8 trillion in infrastructure investments over the next 10 years.

To find out more about how thematic indices work and how to invest in themes.

Download full report

Investing in themes

 

We believe there are a number of investment themes that emerge at the intersection of the five megatrends that we have outlined.

Some investors may want to consider employing the skills of an active fund manager to select stocks that provide exposure to a particular theme – as long as they are prepared to pay the associated costs that may come with such investments. Others may want to consider a rules-based approach to thematic investing, whereby a set of rules – rather than a fund manager making an active decision – determine whether a company is connected to a theme or not. Today, investors can benefit from this new, low cost, approach to thematic investing.

Capital at risk. All financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed.

Hand iconClick on the icons below to find out more and see our related funds
Automation and
Robotics
Breakthrough
healthcare
Ageing
population
Digitalisation
 X 
3Ageing population
Captures companies that are positioned to benefit from the growing needs of an older segment of the global population. This theme covers a diverse variety of sectors from healthcare and pharmaceuticals to financials, aged-care and consumer.

Capital at risk. All financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed.

Why AGED?

1. Competitively priced and diversified access to companies that specifically provide products or services to the world’s ageing population (defined as people aged 60 years or above).

2. Growth potential due to a rapidly ageing global population, medical advanced and societal changes.

3. Express a long-term view within your equity allocation.
2Breakthrough healthcare
This theme captures companies that are focused on advancing specific aspects of the healthcare industry, including drug treatments, patient care or diagnostic tools. As health services around the world face rising demand from an ageing population, more efficient and effective ways of delivering treatment and care are likely to be needed.

Capital at risk. All financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed.

Why HEAL?

1. Competitively priced and diversified access to companies across the world that are focused on innovation within global healthcare services, across both developed and emerging markets.

2. Growth potential due to major structural drivers including shifting global demographics, social changes and the increased application of technology.

3. Express a long-term view within your equity allocation.
1Automation and Robotics
Robotics are transforming the workforce and offer the possibility to significantly increase productivity in certain industries. Our Automation & Robotics theme captures companies that are innovating in this area. The theme focuses on a range of specific technological areas including nanotechnology, manufacturing robotics and wearable technology.
Capital at risk. All financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed.

Why RBOT?

1. Competitively priced and diversified access to companies that are developing technology in the fields of automation and robotics, across both developed and emerging markets.

2. Growth potential due to major structural drivers including lower development costs, evolving technology and rising salaries.

3. Express a long-term view within your equity allocation
4Digitalisation
Technology and consumer behaviour appear to be rapidly disrupting many industries. Financial services is one of these industries, where demand from an increasingly technology-savvy customer base seems to have sent both established companies and start-ups scrambling to offer differentiated digital experiences. As such, our digitisation theme focuses mainly on cybersecurity, electronic payment processes and financial technology. Capital at risk. All financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed.

Why DGTL?

1. Competitively priced and diversified access to companies that offer digitally focused services across both developed and emerging markets.

2. Growth potential due to the increasing prevalence and application of digital services.

3. Express a long-term view within your equity allocation.

To find out more about how thematic indices work and how to invest in themes, download the full report.

Download the full report

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any financial instrument or product or to adopt any investment strategy.

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