What are megatrends and why are they relevant to investors?
Megatrends, long term transformative forces that could change everything we do, from the global economy to business and society, have been affecting the way we live for centuries. We are arguably living through one of the most significant periods of change in the history of the planet, with the pace of change rapidly shaping the world around us.
Many of us are familiar with the effects of these megatrends and may have already experienced their impact. For example, mobile technology has revolutionised the way in which we communicate and work – with many of us relying upon phones to help us check emails, listen to music and keep up with the day’s news, and share experiences with friends and family.
We believe that at present there are five key global, interconnected megatrends: changing economic power (rise in power of less developed countries vs. currently more developed ones), climate change and resource scarcity, technological breakthrough, demographics and social change, and rapid urbanisation.
These trends are likely to be driving change in the world for the next few decades. And because of that, they also influence our investment decisions – from the businesses, industries and countries we invest in, to the way we go about finding opportunities.
Identifying the potential for change is a key driver of investment decision-making, often requiring patience and a long-term perspective while waiting for situations to develop. For example, while we are already seeing the impact of climate change upon the world around us, we know the consequences of this will be far-reaching in the future.
Technological breakthrough is possibly the most significant of all the megatrends, acting as both a trend in itself and in providing the answers to some of the emerging challenges and opportunities posed by other trends. Discussions about the use of artificial intelligence, data, and robotics no longer reside in Silicon Valley and tech hubs, but instead are paving the way for change in all kinds of sectors – from healthcare, to infrastructure and retail. According to Klaus Schwab, Founder of the World Economic Forum, we are amid a fourth industrial revolution – the digital revolution – with the pace at which this is advancing set to accelerate.
A thematic approach to investing may provide a coherent approach to accessing these technological advances, drawing together companies from across the world based upon their work in fields such as automation and robotics, and considering their impact upon different industries – from the challenges they pose to the opportunities they create. A geographical or sectorial approach to investing might limit the opportunities investors have through exposure to these future-shaping trends.
The world will adapt because of these trends, and our portfolios will too; keeping one eye on the horizon and an appreciation for the breadth of opportunity they provide, the interconnectivity and potential effects to everything we do can enable investors to benefit from their value.
Rob Powell is lead strategist, iShares thematic investing at BlackRock