What was already a megatrend is entering a new phase. Service providers expect that many of the behavioural changes forced on people by the pandemic will be permanent. Banks are helping older customers come to terms with online banking as they bring forward plans for branch closures.
As banks accelerate the move to replace bricks-and-mortar with online services, the opportunities for fintechs to collaborate with banks or compete with them for the provision of new services expand exponentially.
Some parts of this megatrend are more investable than others.
The major winners of social life moving online have been Facebook, Amazon, Apple, Netflix, Google and the other “FAANG” stocks. Facebook and Google have replaced newspapers as the primary distributors of information and cannibalised their business models (selling audiences to advertisers).
Other opportunities in the digital economy transformation are emerging with demographic changes. India and China collectively have 1 billion young people, most of whom are heavy internet users thanks to smartphone availability. This creates a strong runway for the digital economy in emerging markets.
As the global economy started its post-COVID recovery, it became clear that one effect of the digital economy transformation is a global shortage of semiconductors. The global semiconductor market will approach US$500 billion in sales this year and political leaders are starting to talk about the need for long-term self-sufficiency of supply.
Our recently upgraded megatrends research highlights long-term trends and investment opportunities in four areas: transformative technology; society and lifestyle; health and healthcare; and environment and resources.
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.
By following megatrends, investors can access high-growth opportunities, which are not yet fully captured by conventional sectors or unexpressed by factors. Additionally, they can manage risk by hedging against the disruption that global economic ructions can cause.
With the rise of thematic ETFs, megatrend investing has become more readily accessible.
A megatrend is a long-term structural shift that transforms economies. They can be distinguished from cycles in that the changes they create are enduring. Examples from previous decades, include the creation of cars, which ended the horse-drawn carriage industry within 30 years. Creating cars did not just make humans more mobile, it also created the modern geography of cities, including highways, suburbs and shopping centres.
What megatrends all have in common is that they are intertwined with demographic and technological changes. Their uptake is usually exponential; at first there is a time lag for adoption, then soon the megatrend is everywhere. For investors, thematic ETFs offer an easier than ever solution to invest in megatrends.
Kanish Chugh, head of distribution, ETF Securities