Invest in these megatrends shaping the world

Demographics

A post-World War II economic boom in the 1950s & 1960s led to high population growth rates across the globe, particularly in the US, spawning a generation known as the baby boomers who sit at the centre of demographic trends today. The parents’ of millennials who are in their 20s or 30s are likely part of the baby boomer generation.

Chart 2: The world is becoming older with the proportion of older people set to rise in the next decades

As people are living longer than ever, this means that the world, on aggregate, is forecasted to grow older over the next three decades. Comparatively, developed markets are expected to grow older at a faster rate than emerging markets. Ageing demographics present opportunities for certain businesses. For example, there is a secular rising demand for healthcare given the greater need for therapeutics and healthcare services.

The world is not only getting older, but also wealthier too. Over the next decade, middle class consumption globally is expected to rise. Much of it will be contributed by countries like China, India and Indonesia. The share of global middle class by region, is forecasted to be wholly contributed by the Asia Pacific region.

Chart 3: Asia Pacific will be adding most of the new global middle class over the next 10 years

As emerging markets experience consumption upgrades, more would flock towards urbanisation in cities and away from the rural countryside. The global urban population is expected to rise by one-third to 6.5 billion in just three decades from now. Further, developed markets are in dire need for infrastructure upgrades, if they were to be successful in their electrification ambitions.

Given the current low levels of infrastructure and capital expenditure, significant investments into various infrastructure (utilities, communications, airports, roads, energy, water etc) will be required over the next decades, and this could potentially drive earnings higher for infrastructure related companies over the long term.

Table 2: List of themes and funds under the Demographics megatrend 

Megatrend	Themes	Equity funds (Theme)	Equity fund (Megatrend)	Bond Funds
Demography	Ageing population	▪ Blackrock World Healthscience A2 USD ▪ United Global Healthcare Acc USD ▪  Janus Henderson Global Life Sciences A Acc USD ▪  FTIF - Franklin Biotechnology Discovery A (acc) USD	▪ Fidelity Global Demographics A-ACC-SGD	-
	Urbanisation	▪ Legg Mason ClearBridge Infrastructure Value A SGD-H (mdis) plus ▪  DWS Invest Global Infrastructure LDMH(P) SGD ▪ First Sentier Global Listed Infrastructure A DIS SGD
	Consumption upgrades	▪ JPMorgan Funds - China A (acc) SGD ▪ Fidelity China Consumer A-SGD ▪ Allianz China A Shares AT Acc SGD ▪ CPR Invest - Education A2 Acc SGD-H

Technological innovation

By far, digitalisation has been the most transformative secular force driving the shifting of norms and behaviours. E-commerce is one example of digitalisation megatrend upending traditional industries like retail, as consumers grow increasingly comfortable with shopping online. This is merely a small piece of a much larger picture. Digitalisation is now spreading towards previously untouched sectors such as financials (fintech) and industrials (5G/IoT).

Our digital footprints will likely increase as we transact online more frequently. Cybersecurity will be a key area of concern for both businesses and consumers as the world becomes increasingly data driven. The usage of artificial intelligence, whether for automation or to generate business insights, has the potential to disrupt a broad spectrum of technologies and sectors. Boundless computing power will be needed as this trend accelerates and proliferates.

Disruptive innovation is one theme which we think is an offshoot of the digitalisation trend. Generally speaking, disrupters are often companies offering goods or services at the infancy stage of a particular technological adoption cycle, that have the potential to change the way the world works, years or a decade from now. Think of disruptive innovation as investing in companies like Apple or Amazon before e-commerce or iPhone adoption became widespread. These winners took twenty years to develop themselves to where they are today.

From industrials, healthcare, financials, to internet-related industries, there are a number of sectors primed for disruptive innovation today. Therefore, funds that invest in this theme are often sector-agnostic, even though the sector exposure may at times be concentrated in a handful. The product lifecycle of disruptive innovators’ tend to belong in the introductory stage, and therefore are usually small to mid-cap companies. As such, the risk of investing in such companies is that not all may succeed over the next decade.

Table 3: List of themes and funds under the Digitalisation megatrend   

Megatrend	Themes	Equity funds (Theme)	Equity fund (Megatrend)	Bond Funds
Digitalisation	5G/IoT/Artificial intelligence	▪ Neuberger Berman 5G Connectivity A Acc USD ▪ Allianz Global Artificial Intelligence AT Acc USD ▪ Natixis Thematics AI & Robotics Fund R/A SGD ▪ Blackrock Next Generation Technology A2 USD	▪ Blackrock World Technology Fund A2 USD ▪ FTIF - Franklin Technology A (acc) USD	-
	Cybersecurity	▪ Natixis Thematics Safety R/A SGD
	FinTech	▪ Blackrock FinTech A2 USD
	E-commerce	▪ Any growth centric regional/country equity fund
	Disruptive Innovation	▪ Nikko AM ARK Disruptive Innovation B SGD ▪ LionGlobal Disruptive Innovation Fund A SGD ▪ CPR Invest - Global Disruptive Opportunities A2 Acc SGD-H	-	-

Performance

Funds under the Environment theme have all performed quite well over the last couple of years – much of this outperformance really came from the funds with very strong tilt towards electric vehicles and solar energy. These two segments were the flavour of the year as investors flocked towards these areas in 2020 due to their high growth potential in a seemingly low growth environment.

But as we mentioned in ‘Green energy is the next big thing. But is it a right time to invest?’, these industries currently trade at expensive valuations, which could become a headwind should rates continue to march higher in the months ahead. Therefore, do not get starry-eyed simply for its recent performance. Think bigger picture and of longer time frames.

Table 4: Funds' performance under Environment theme

Among the three, demographics is arguably one of the broadest encompassing megatrends. As such, we see highly varied results across the healthcare, consumption and infrastructure themes. Despite categorised as a geographic region, China is a great play as a consumption theme given its burgeoning middle-class population and rising income levels.

Infrastructure related funds have not done so well thus far given that many of the sectors they delve into are generally more defensive in nature. In the current market cycle, investors have not found such companies attractive due to their stability and/or relatively low growth prospects. This stigma could change should fiscal spending continue to expand over the next decade to fund infrastructure programs. 

Table 5: Funds' performance under Demographics theme  

Tech-related funds have had a great year largely due to the paradigm shift in technology adoption by the broader economy during the COVID-19 period. With more people moving their daily lives over to the internet, it also means that companies whose business models rely on the consumption of digital media and goods benefitted in a major way. Even with the passing of the pandemic, we believe these norms and behaviours are unlikely to revert back to what it was.

Table 6: Funds' performance under Digitalisation theme    

Conclusion

Framing our investments into themes or megatrends helps to give a better idea of what and why we invest. Megatrends offer numerous opportunities that likely spans across more than one industry or sector along the value chain. Given the world is highly inter-related, we should approach it in the same way for megatrend investing, through actively managed unit trusts that can provide holistic exposure towards various themes that are part of a megatrend. Time needs to be your ally when it comes to investing in megatrends. Investors are highly recommended to take up a regular savings plan to ride out the volatility that comes investing in long term trends.