Mega trends are powerful forces that can change economies and even society. They are long term in nature and have irreversible consequences for the world around us
Think the discovery of electricity, the invention of cars and aeroplanes… the internet. All of these things have transformed the way we live our lives and therefore have an impact on our investments.
Recent research from the likes of PriceWaterhouseCoopers (PwC) and BlackRock/iShares has highlighted five key mega trends that are expected to shape our lives in the next 20 years or so: rapid urbanisation; climate change and resource scarcity; shifts in global economic power; demographic and social change; and technological breakthroughs. Here, I take a closer look at each.
More than half of the world’s population lives in urban areas and 1.5 million people are added to the global urban population every week – most of which are in emerging markets. This level of urban migration will place huge demands on infrastructure, services, job creation, the climate and the environment.
One way to invest in this mega trend would be via a fund such as First State Global Listed Infrastructure. It invests in global-listed infrastructure assets including toll roads, airports, railroads, utilities and wireless towers. Growing urbanisation is likely to underpin long-term demand for its holdings, many of which provide essential services to some of the most densely populated regions in the world.
Climate change and resource scarcity
With increasing numbers of floods, cyclones and wild fires, if we need any further proof that we have a climate change problem that must be tackled, it comes in the fact that 16 of the 17 warmest years on record have occurred since 2001.
At the same time, managing the increasing need for food, water and energy by a growing global population, is becoming a huge challenge. According to the Food and Agriculture Organization of the United Nations, the global population will surpass 9.1 billion by 2050, at which point it predicts the world’s agricultural systems will not be able to supply enough food for everyone. The UN says that demand for fresh water will exceed supply by 40% in some cities.
A fund I like that invests with these issues in mind is Pictet Global Environmental Opportunities fund. All companies within the portfolio must operate ‘within a safe operating space’ for each of nine environmental challenges identified, and also actively contribute to solving these challenges.
Shifts in global economic power
Emerging economies now account for nearly 80% of global economic growth, and 85% of global consumption – more than double their share in the 1990s. China is at the centre of this change. Having been a tenth of the size of the US less than 15 years ago, it is set to replace the US as the largest global economy in the late 2020s.
To tap into China’s future growth potential, investors could consider a fund such as the Invesco China Equity fund. It has increased the amount it is allowed to invest in China A Shares – the shares of domestic-listed Chinese companies, which have recently been opened up to more foreign investors.
Demographic and social change
Changes in global demographics will bring major challenges and opportunities. For example, the iShares mega trends report found one in five Western Europeans is older than 65, with this expected to rise to one in four in the next decade.
Healthcare is one example of how we can invest in this trend. As we all live longer, we are likely to need more healthcare provision. Polar Capital Global Healthcare investment trust works well with this mega trend. It invests predominantly in companies from pharmaceuticals, biotechnology, medical technology and healthcare services.
Finally, new technology is essential for all other mega trends to succeed, so it has become a mega trend in its own right.
Investors may consider the likes of Smith & Williamson Artificial Intelligence or AXA Framlington Global Technology fund as a potential route to tap into this trend. The latter is a fund that touches almost every aspect of our lives, from our mobile phones to our online weekly shop.
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Darius’s views and those of the investment professionals quoted are their own and do not constitute financial advice.
Darius McDermott is managing director at Chelsea Financial Services and FundCalibre