What are megatrends?
While we do not know what tomorrow’s world will look like, we can be sure it will be different from today’s. The world is constantly changing and it can often be difficult to comprehend the intricacies of the trends that are developing around us. Some of these trends start small and at first do not seem meaningful. But eventually, they become so powerful that they are neither stoppable nor reversible. These so-called megatrends are often interconnected, making them even more powerful.
The future is electric
Spotting these trends and turning that information into tangible investment themes isn’t easy as they can start small, but it is worth the effort. Let’s look at future mobility. This is one of the great transition stories of our time as the industry is getting in gear to move from the ‘old status quo’, that is cars running on the combustion engine, to the ‘new status quo’ the development of electric vehicles. Bar a few pure play EV makers, most old school car manufacturers understand that the transition will happen. And how they are positioning themselves for that is critical. You can see their visions for the future by the way they are cross financing this transition – using profits from combustion engine cars to fund the research and development of electric cars. Those that are doing this right are sending clear signals to investors as to where the industry is heading and those that don’t do it right are the ones you should avoid investing in.
What’s real and what’s hype?
Looking under the hood of a company will also help you answer a big question: how do you know what is real and what is hype?
Careful analysis and a solid approach to your research will help you make better decisions. It’s hard to get away from talk about the potential impact of AI these days. So how do you know it’s not just hype? ChatGPT has grabbed headlines, but the real-world applications of generative AI, the industry uptake, long-term development agendas and significant moves towards regulation and ethics tells us this is a story that is here to stay.
Investing in megatrends - three points to consider
Deploy a long-term approach
Investing in themes means you’re not investing in the short-term volatility of markets. That’s a crucial shift in your time horizon. Investing for longer periods of time gives you the flexibility to ride out market moves and temporary shocks to the system. It may provide investors with greater peace of mind because they don’t have to take on bigger risks to make up for any short-term losses.
Align with beliefs and interests
Investing in themes also means you’re more likely to have an interest in your investment. You can align your portfolios with your personal beliefs, values and interests. It provides the opportunity to support causes you care about, such as sustainability, renewable energy, technology innovation or healthcare advancements.
Benefit from diversification
Investing in themes means you have flexibility in how you invest - because you can choose single stocks, or funds and invest across the whole value chain. So, continuing with artificial intelligence, you can invest in cloud computing, software companies, computer hardware and semi-conductors. And that means you also benefit from diversification. Diversifying your investments can help spread risk across your portfolio by reducing the impact of anything that doesn’t perform as well as expected.
Be careful when it comes to funds as you should ensure you have thematic purity. If a fund is labelled as an AI fund or genomics fund, make sure the products inside it conform to the theme. This is critical for two reasons. Firstly, to make sure you’re putting your money in the right places, and secondly because successful thematic investing means the companies are having an impact and that their action on a theme will drive share price.
Of course, if you have a passion for a topic, but don’t have the capacity to get your head into the workings of an entire industry, some financial institutions employ teams of people to do the research for you. They can provide you with short and easy-to-read insights to help you become better informed.