Kanish Chugh
Investors looking to take advantage of major demographic and technology trends that will transform economies should turn their attention to automation and artificial intelligence, the digital economy in emerging markets, the application of genetics in healthcare and battery technology.
Leading exchange traded fund provider ETF Securities has updated its megatrends research paper[1], highlighting four sectors where developments will have a transformative impact over the coming decades.
ETF Securities Head of Distribution Kanish Chugh says: “More and more investors are using long-term structural shifts that transform economies – or megatrends – as the basis for their investment decisions.
“Correctly identifying and acting on megatrends can offer enormous upside. Those who invested in computer businesses Microsoft, Apple and IBM in the 1970s, on the cusp of the personal computer revolution, went on to reap super profits.
“At ETF Securities, we believe there are currently four main megatrend groupings: transformative technology; healthcare and wellness; society and lifestyle; and environment and resources.”
With the rise of thematic ETFs, megatrend investing has become more readily accessible.
“In a short space of time, thematic ETFs have become a popular tool for investors, advisers and institutions,” Chugh says
In the six months to June 2021, the funds under management in thematic ETFs listed on the ASX have risen 35 per cent according to the ASX.
ETF Securities groups megatrends into four categories:
- Transformative technology – One sector where technology breakthrough will come this decade is robotics, automation and artificial intelligence – sometimes referred to as “industry 4.0”. Industry 4.0 is where businesses use modern robotics, the internet and big data to create remotely controlled factories, self-driving cars and self-programming computers. Amazon’s warehouses, where items are moved by robots, are a good example
- Society and lifestyle – The big winners from changes to the way we conduct our relationships have been Facebook, Apple and the other FANG stocks. The big opportunities for the digital economy in coming years will be in emerging markets, particularly China and India. Ageing populations have consequences for robotics and automation, which will be required to meet labour shortages.
- Healthcare and wellness – Healthcare spending is growing faster than GDP in most developed countries, as the cost of aged care grows and the obesity and diabetes epidemics continue. Future developments will flow from the application of genetics, with a focus on the mRNA field. Genomics, which uses an individual’s DNA to tailor medical treatments, is another emerging field.
- Environment and resources – Batteries are essential for sustainable energy from renewables. Battery technology is getting renewed attention from industry along with government subsidies, thanks to the Biden Administration’s recommitment to the Paris Accord.
Other likely environmental developments include greater investment in desalination and water recycling to offset declining rainfall, and the replacement of single use plastics with biodegradable alternatives.
Thematic ETFs work like the familiar ETFs and index funds: they follow indexes. However, the indexes they track are devised specifically to target megatrends. The indexes are usually more detailed, specific and research intensive than the household name indexes like the ASX 200 or Nasdaq 100. They can in some instances be built by research houses or consultancies with specialist knowledge of a megatrend.
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