The 5 Megatrends Shaping the Future of Investing

iShares' Rob Powell talks to Emma Wall about thematic investing and how megatrends are shaping global economies and stock markets

Emma Wall 24 September, 2018 | 8:22AM
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Emma Wall: Hello, and welcome to the Morningstar series, "Ask the Expert." I'm Emma Wall and I'm joined today by iShares' Rob Powell to talk about thematic investing.

Hi, Rob.

Rob Powell: Hi, there.

Wall: So, BlackRock have identified five megatrends which are going to shape the way we live, the global economy and even the stock market in the future. What are these five megatrends?

Powell: So, megatrends are structural trends. So, drivers of change in the world that are going to be playing out for the next 30 years or so. And we've highlighted five key megatrends that we think are going to be driving that change.

So, they are; technological breakthrough; so, that's all about the increasing speed with which technology is going to develop going forwards. Urbanisation; so, this is about the mass migration of people from living in rural areas to living in urban areas. Climate change and resource scarcity; I think we can all – with the summer that we've had we can all – that resonates with all of us.

Changing economic power; so, this is about the increasing importance of the East versus the West, so the declining importance of the U.S. and Europe and the increasing importance of China as an investment location but also as their share of global economic growth. And then finally, demographics and social change; so, this all about changes in population dynamics, so aging populations, the rise of millennials, things like that.

Wall: So, it seems like each of those themes has both negative implications but also positive ones. There are opportunities, investment opportunities, in there. Perhaps, we could start though with the negative implications, technological change, for example.

We have begun to see disruption in digitalisation do away with traditional sectors. But presumably, there are victims to each of these trends in terms of the way that we invest and the businesses that are out there today?

Powell: So, I guess, there will definitely be winners and losers for these kinds of large-scale changes. If something like technology is both an enabler and something that does affect people's livelihoods and jobs, we would prefer to focus on the positive aspects of that and look at the potential job creation and value creation in investment portfolios that historically these kinds of things have led to.

Wall: Now, I know there are some thematic ETFs where people can get direct access to these themes. But presumably also, these are kind of philosophies and trends that everybody can access in terms of there must be active fund managers at BlackRock who are really taking a look at these trends and the way that they are influencing themselves as well as the sort of more specific ETFs that iShares are offering.

Powell: Yeah, absolutely. So, I mean, megatrends and thematic investing isn't something new. This is something that has always existed. Active portfolio managers have always focused on super long-term themes to drive their short-term stock selection.

What is new is the advent of ETFs that can give you exposure to a very specific theme. And the reason that they do exist now is because of advances in data. So, it's almost linked to that technological change, megatrend that we have. We are seeing that play out in our own industry with improvements in data, enabling us to construct things like indices which can give investors access to things like robotics, or digitalization which are really about tapping into the effects of these long-term megatrends.

Wall: And also, just finally, there's also a rise in interest in ESG themes which do sort of overlap slightly with these megatrends, don't they?

Powell: Yeah, absolutely. Particularly, on the climate change side, we do have – there's that green element within here. So, things like clean energy companies. And as you highlighted before, there are going to be losers and there are going to be winners.

But if we can focus on the winners, so the clean energy companies that are going to potentially benefit at the expense of the incumbent fossil fuel producers, then we can have a positive impact on investors' portfolios.

Wall: Rob, thank you very much.

Powell: Thank you.

Wall: This is Emma Wall for Morningstar. Thank you for watching.

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Emma Wall  is former Senior International Editor for Morningstar

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