These four long-term trends are affecting not just the planet, but also the financial markets and those that participate in them. However, they are often too large and move too quickly for investors to grasp. In addition, the characteristics of the companies involved in these trends are gradually blurring the lines between countries, industries and sectors from investors’ point of view. As traditional classifications become obsolete, many portfolio managers are breaking free from the shackles of traditional, sector-driven and passive investments, instead adopting theme-based solutions. But how can a themed approach deliver superior investment returns by viewing the future in the light of these four secular trends?
A trend has many consequences. It is therefore vital to select an angle of attack and back it up with suitably skilled people in order to identify the companies that will shape the future. It is necessary to drill down deep into a trend to ascertain specific themes. As regards demographic change, there are investment strategies addressing themes related to population growth and its social and structural consequences, rising life expectancy, the economic impact of the growing middle class, and urbanisation, as cities draw in increasing numbers of people, especially in emerging-market countries. It is impossible to develop a single investment strategy based on a trend such as demographic change, but themed strategies have been successfully launched, breathing new life into active asset management.
The population explosion has its roots in scientific progress and the way it has been applied through technology.
Without that progress, the world’s population would not have tripled in the 20th century. Advances in the pharmaceutical industry have helped to reduce infant mortality and curb certain epidemics, and have simply helped people live longer and more healthily.
Farmers have been keen to adopt technological advances, which have increased crop yields. However, it is not enough to just produce more food: there is also the desire to produce it in a more responsible way, giving people more consistent access to nutrition and gradually improving the food they eat. All of these factors are leading to population growth, as well as offering investment opportunities to those that can identify them early enough.
The increase in the world’s population does come with difficulties.
The resulting ethical and technological challenges must be met in order to overcome the limited supply of water and arable land, but also to combat the pollution that is affecting all aspects of our ecosystem. These problems also affect large cities which, in order to survive, must become “smart”, reinventing the way they are organised through new technology. To meet these challenges, we need ambitious, courageous governments, new legislation, but above all companies that can embody and shape the future through their incredible ability to innovate and adapt quickly.
From the investor’s point of view, there is another important reason to consider demographic change and its related themes. The world has more generations of people coexisting over longer periods. Although millennials and the greying baby boomers do not share the same consumption patterns, their interests are permanently intertwined. All the more reason to look at the full demographic spectrum, in order to identify not just intergenerational transfers of wealth, but also the entrepreneurs taking part in this unprecedented shift.
Cédric Le Berre