What is an investment megatrend?

• Technological innovation, the megatrend par excellence
• Demography: ageing and urbanisation
• Sustainable development from a socio-environmental perspective
• How do you invest in a megatrend?

What is a megatrend?

In 1982, the American author John Naisbitt published the book 'Megatrends: Ten New Directions Transforming Our Lives': it was then that the term 'megatrend' began to be used in the investment world. The term refers to forces and trends in the development of economies and societies that are capable of changing the habits and living conditions of millions or even billions of people. Unlike fads and passing trends, megatrends have a lasting and profound impact. In the investment arena, megatrends are used to guide the thematic strategies of funds and portfolios, with the aim of allocating resources to baskets of securities that can benefit from these radical changes.

Here are three examples of megatrends: technological innovation, demographics and sustainability.

Technological innovation, the megatrend par excellence

Technological innovation is one of the classic megatrends. It is hard to find an area that is not and will not be affected by it. In everyday life, private communication, work and entertainment are carried out through technological devices such as smartphones, tablets, personal computers, etc. In the productive sphere, they range from the value chains of these devices and connectivity systems to their application on an industrial scale, as well as in transport, finance, medicine, and so on. Clearly, technological innovation is such a broad megatrend that it requires further segmentation within it. Without claiming to be exhaustive, we list some of the most relevant:

• Digitalisation of services, goods, consumption, etc;
• Artificial intelligence and automation;
• Healthcare technology;
• 5G, home automation, IoT (Internet of Things), smart cities;
• Cybersecurity, big data, cloud services, fintech.

Demography: ageing and urbanisation

Demography, ageing and urbanisation are megatrends of a primarily social nature.

• The gradual ageing of the population (especially in the most developed countries) is a consequence of growing prosperity and improved care capacity. However, it also means the growth of sectors dedicated to satisfying the demand for goods and services from this growing segment of the population, including the increasing importance of personal care services, which must of course include healthcare. The economic system built around the third age is also called the 'silver economy'.
• However, demographics are not the same all over the world: in emerging countries, for example, the demographic pyramid is less inverted than in more developed countries, and this leads to a more pronounced development of other service and product ecosystems, for example as a function of the emergence of a new young middle class of workers.
• The evolution of demographic and socio-economic conditions is also responsible for the increasing urbanisation of humanity: this phenomenon, which leads to the growing presence of cities with hundreds of thousands or even tens of millions of inhabitants, is also rightly part of the megatrends. 

Sustainable development from a socio-environmental perspective

Sustainability is a growing requirement to avoid the most harmful consequences of climate change and pollution. Awareness of sustainability has grown among institutions, but also in the productive world and among citizens. The synergy between government policies supporting sustainability, business opportunities and consumer/investor demand has in turn created a vast productive ecosystem that is changing the lives and behaviour of a growing proportion of the population. However, the fact that this mindset cannot be reduced to a simple concern for the environment is well illustrated by environmental, social and corporate governance (ESG) investment criteria and the UN Sustainable Development Goals (SDGs). Sustainability could also be broken down into thematic sub-areas: from renewable energy to social inclusion instruments, from water, land and biodiversity conservation policies to electric mobility.

How do you invest in a megatrend?

Investors have more than one tool at their disposal to invest in megatrends. If they are professionals, they can add stocks to their portfolio that they believe will benefit from these macro-economic and social trends. Small investors or savers can turn to asset management companies or financial advisors to develop an investment strategy that involves subscribing to shares in thematic funds that invest in a megatrend. These funds can either be active funds, where the basket of securities is made up of portfolio managers who monitor and update the allocations, or, by turning to authorised and specialised intermediaries (including management companies), one can opt for the underwriting of a passive fund investing in a megatrend, i.e. an ETF that replicates a market index based on a constellation of securities that can be aggregated on the basis of a megatrend.

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