Five megatrends for the long-term investor
Deciding how to invest can be hard. First you have to think about your financial goals, your own tolerance to risk, and how to balance sleeping soundly at night with making enough money to meet those goals.
And even when you think you’ve made your decision, UK politics has become Britain’s most-watched soap opera, President Trump is upsetting pretty much everyone on Twitter, drones are attacking oil fields, and the world looks a very uncertain place.
You could be forgiven for stuffing your hard-earned cash under the mattress and waiting for the world to become a better place.
The trouble is, there is generally something happening in the world to cause uncertainty, and sitting on your cash isn’t going to help you reach those goals. So one solution could be to ignore everything that is happening today, and think about what will be happening – and what the world might look like – in 10, 20 or even 30 years time.
Research from PriceWaterhouseCoopers (PwC) and BlackRock has highlighted five megatrends – global, macroeconomic forces that will impact the way we live and do business in the future. They are: rapid urbanisation; climate change and resource scarcity; shifts in global economic power; demographic and social change; and technological breakthroughs.
We take a brief look at each and how investors can tap into these megatrends.
Looking at each megatrend
Let’s start with rapid urbanisation, where figures show half of the world’s population now live in urban areas and, crucially, around 1.5 million people are added to the global urban population every week. By 2050, 66 per cent of the world’s population is projected to be in urban areas.
The argument for climate change is well documented. According to BlackRock 16 of the 17 warmest years on record have occurred since 2001.
Food and water scarcity is a growing problem for the future, particularly with the global population set to swell to over 9 billion by 2050.
The shift in global economic power is also very clear. Emerging and developing economies now account for nearly 80 per cent of global economic growth, and 85 per cent of growth in global consumption – more than double their share in the 1990s. China is at the centre of this change given it is set to replace the US as the largest global economy in the late 2020s, when as little as 15 years ago the economy was a tenth the size of the US.
Changes in global demographics will bring major challenges and opportunities for businesses in the future. For example, the number of people aged 80 years or over is projected to triple, from 143 million today to 426 million in 2050. The need for income, as life expectancy figures continue to rise and longer is spent in retirement, is bound to increase.
New technology is essential for all other megatrends to succeed – meaning it has become a megatrend in its own right. We have seen the success the likes of Amazon has had disrupting multiple marketplaces. And, according to BlackRock, machines will learn faster than humans, personal data will be a valuable commodity and nearly two-thirds of all occupations could see a third or more of their constituent activities automated.
How to access these megatrends
There are numerous funds and trusts that can tap into one or more of these trends for investors.
PwC estimates 90 per cent of this urban population growth will take place in African and Asian countries with rapid urbanisation placing huge demands on infrastructure, services, job creation, climate and the environment.
Investors might like to look at M&G Emerging Markets Bond which has 25 per cent of the portfolio in bonds from the Middle East and Africa, including the Cameroon, Nigeria and Kenya , or a regional offering like Matthews Asia Pacific Tiger fund, which has more than half of its holdings in India and China – this means investors are also getting exposure to the shift in economic power megatrend.
There are other China specific vehicles to consider for this trend, such as First State Greater China Growth or the Fidelity China Special Situations trust – whose manager Dale Nicholls believes China will become such a force, that most Asian equity funds will move their benchmarks from Asia ex Japan to Asia ex China in the future.
For climate change, the Pictet Global Environmental Opportunities fund goes well beyond climate change and addresses a full range of global environmental challenges using the Planetary Boundaries framework. The managers identify companies where a minimum of 20 per cent of their activities are actively solving environmental challenges.
Income is an essential demand for social and demographic changes, as life expectancy continues to rise. Investors could opt for equity income funds, where I would suggest looking at a UK vehicle, such as City of London Investment Trust or a global vehicle like Guinness Global Equity Income.
Investors may consider the likes of the AXA Framlington Global Technology fund as a potential route to tap into the technology trend. Jeremy Gleeson has managed this fund since 2007 and targets ‘new technology’ rather than ‘old technology’ – as he believes it is particularly important to avoid losers in this sector.
Another option is Smith & Williamson Artificial Intelligence, which itself uses an artificial intelligence system to help find companies whose business models are aligned to benefit from this growing theme.
Darius McDermott is managing director of Chelsea Financial Services