Why do megatrends matter to investors?
The world is subject to reinvention and renewal – the future will not look like the past.
Identifying megatrends helps us understand the shape of the investment landscape over the next decade and beyond, steering us towards opportunities and away from areas that could lose from disruption.
This is particularly important today, as the world wrestles with profound changes: it cannot go back to burning fossil fuels freely or turn the tide on technology. It needs to adjust to the rise of China and its mounting influence on the world stage. Each change brings risks, but also significant opportunities for those industries that are on the right side of these tectonic shifts.
Focusing on these profound changes in the economic and social landscape also helps us to assess the resilience of our investments at Evelyn Partners. This works in harmony with the consideration of material environmental, social and governance (ESG) factors that is applied to our investments. Companies that take care of these risks should benefit from megatrends, rather than be disrupted by them.
Our megatrend framework
Our megatrend framework considers how these long-term trends interact with each other to influence the global economy. For example, we expect new technologies developed in the ‘technological revolution’ to solve some of the healthcare challenges presented by ‘shifting demographics’.
These megatrends also collide with shorter-term ‘cyclical’ trends that influence economic outcomes in individual countries or regions. These include government decisions around spending or taxation. Both sets of trends will then shape the macroeconomic drivers of growth, inflation and interest rates – at the country and global level. These macro drivers go on to influence the investment returns attributed to individual asset classes and sectors. Understanding these interactions is essential in ensuring investment portfolios are positioned appropriately.
Frequently asked questions about Megatrends
Megatrends are powerful, multi-decade forces that reshape economies, businesses and societies. Examples of megatrends include the energy transition, as the world moves away from fossil fuels to address climate change, or the changing world order, as the rise of China changes the geopolitical and economic landscape. They are larger and more disruptive than simply ‘trends’, which may be relatively short-term and transitory in nature.
Understanding megatrends is key to understanding the investment landscape of the future. Assuming the next decade will look like the last has often proved a dangerous approach, particularly during times of profound social and economic change. Looking at these powerful long-term forces can help guide investors towards pockets of opportunities and away from significant risks.
Whether it is a car company that needs to move to electric vehicles, or a hospitality group embracing digitisation, every business needs to look at how it could be affected by a changing world. Companies that are slow to adjust may find their products become obsolete, or their competitive advantage ebbs. For investors, it is vital to understand which companies are on the right side of these profound changes.
Megatrends can guide investors to those companies and industries with a strong pathway of growth. However, valuation can be a concern if markets get too excited about the long-term prospects for a particular theme. It is possible to invest in these themes directly through dedicated collective funds or ETFs, or to cherry-pick individual companies that stand to benefit from these shifts. Speak to us if you would like to find out more.