Tech, the Environment and Inequality to Most Impact Markets

Social inequality, changing demographics, cybersecurity and environmental challenges will most impact investment returns in the future

David Brenchley 14 December, 2017 | 3:20PM

Technology, environmental concerns and social inequality are the megatrends that will most impact investment returns, according to new research compiled by Willis Towers Watson and the Principles for Responsible Investment (PRI).

As technological change becomes more prevalent and accelerates, it’s now been pinpointed as the global megatrend likely to be the biggest opportunity or threat to investment institutions, according to new research.

Within this, cybersecurity and privacy; automation and artificial intelligence; and digitisation and the Internet of Things are all seen as sub-trends that will have the most severe impact, as well as being the most difficult to manage for businesses.

Other areas identified are growing social inequality, changing demographics and environmental challenges, according to the PRI.

Fiona Reynolds, managing director at the PRI, says she is not surprised at the prevalence of environmental concerns in the list, seeing as the issue is a big consideration in the World Economic Forum’s Global Risks Report.

In fact, according to the latest World Economic Forum report, “a cluster of interconnected environment-related risks” has featured among the top-ranked global risks for the past seven years. These include extreme weather events, climate change and water crises.

David Hoile, global head of asset research at Willis Towers Watson says the report gives investors a deeper insight into the risks and challenges facing investment institutions in the future. It is crucial to building resilience and creating opportunities, he adds.

“It is increasingly apparent that these megatrends, and the ability to understand and manage them, should form part of all institutions’ investment processes,” Hoile continues.

Megatrends are defined as global macro forces that will transform business, the marketplaces that they operate in and society as a whole. The research was compiled through surveys and telephone interviews with 300 investment institutions across a broad range of industry sectors and geographies.

Co-operation, Not Disruption

Patrick Lemmens, manager of the Morningstar Bronze rated Robeco New World Financial Equities fund, and Jeroen van Oerle, co-manager of the Robeco Global FinTech Equities fund, both believe so-called disruptors will actually not be disruptive to industries.

“Fintech is not about disruption, it’s about co-operation,” say the managers. “That will be the key word going forward.”

They make the point that due to financial institutions not having that knowledge, they will have to buy it in. Meanwhile, it’s getting ever more expensive for the new challenger players to reach profitable scale. Those two factors ensure the need for co-operation between small and large businesses.

Gender Equality Another Key Trend

Two key themes in ESG investment set to come into focus in 2018 are gender equality and social housing, according to Camilla Ritchie, manager of the 7IM Sustainable Balance fund. “Gender equality is the United Nations’ fifth sustainable development goal,” notes Ritchie.

She points to the recent launch of the Lyxor Global Gender Equality ETF (ELLE) and expects more choice to develop to meet this theme. “With 6 February set to mark 100 years since women got the vote in the UK, it would be timely – not to mention overdue,” she adds.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
7IM Sustainable Balance A Acc165.90 GBP0.42
Lyxor Global Gender Eqlty (DR) ETF C USD11.84 USD0.39
Robeco New World Financial Equities D €81.47 EUR-0.17

About Author

David Brenchley

David Brenchley  is a Reporter for Morningstar.co.uk

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