These trends, like the industrial revolution, globalisation and, more recently, the digital revolution, have not transformed the global economy overnight. Instead they have propelled a process of gradual change, often over several decades.
Looking back, these trends can have an aura of inevitability about them. It might seem today that it was entirely predictable that the internet would change the way we communicate, shop and work. It probably felt less certain after the dotcom bubble burst in 2000, especially to those investors who suffered immense losses.
Although the internet was by no means a fleeting fad – quite the opposite – the stockmarket spike and crash of the late 1990s was a result of investors blindly pouring money into internet-related companies, irrespective of the fundamental business case. That episode serves as a reminder that investing in emerging trends is not always a one-way bet.
It is important to avoid the pitfall of getting caught up in the speculative mania of the ‘next big thing’. We believe that investors looking to tap into secular trends shaping the global economy must focus on themes that are grounded in reality.
Themes grounded in reality
The M&G Global Themes Fund looks to invest in the shares of companies that can take advantage of long-term structural themes arising from changes within economies, industries and societies. It aims to provide a combination of capital growth and income to deliver a return that is higher than that of the global stockmarket over any five-year period.
The fund manager, Alex Araujo, is currently focused on four specific themes, namely demographics, environment, infrastructure and innovation. Each major theme is further refined into two sub-themes:
Ageing populations are driving a major structural shift in the global economy. By 2030, it is projected there will be more than 200 million over-80s worldwide, up from 125 million or so today . There is a clear need for solutions to the financial and healthcare challenges
this presents. Not only are people living longer, but there is also a trend towards healthier and smarter lifestyles that companies can capitalise upon.
Another demographic trend is the sustained global migration of people to cities. The ‘21st century urbanite’ represents a younger demographic with evolving preferences, creating opportunities for those companies that can meet the demands of modern consumers.
The shift away from a carbon-intensive economy will be gradual, but there is growing urgency to limit global warming. While every company has a part to play in the road to zero carbon, those that show leadership – and can align with consumer trends like rising demand for greener electricity – can position themselves for sustainable financial growth.
Environmental challenges are not limited to climate change. Growing interest in solving issues relating to water and waste, and in recycling, is another long-term investment theme. Companies that enable a more circular economy, or that innovate to lower their ecological footprint, stand to be on the right side of regulatory and consumer trends.
From the roads we drive on to the phone masts that connect us digitally, infrastructure serves as the backbone of modern society. The physical networks that provide life’s essentials are as vital as ever. To secure future economic growth, investment is needed to upgrade and expand infrastructure that will last for decades, even generations, to come.
This need is amplified by the chronic underinvestment in global infrastructure over recent years. To make up for this shortfall and ensure future growth is not undermined by poor connectivity, an ‘infrastructure gap’ worth an estimated US$15 trillion must be bridged by 2040 . Commitments to invest more in ‘greener’ infrastructure should also prove to be a powerful tailwind.
The final theme aims to capture technological development by focusing on companies that offer long-term growth potential from their products, intellectual property and creative cultures.
We look at this through the lens of two sub-themes. These are namely ‘the cloud and connectivity’ – reflecting the growing role of digital innovation in driving the shape of the global economy – and ‘the changing face of transport’ – reflecting how the shift away from fossil fuel-driven propulsion and private car ownership is being catalysed by innovative alternatives, like electric vehicles and other innovative solutions.
The world is undergoing significant change, driven by powerful social and economic trends. Companies well-placed to benefit from, and contribute to, emerging global themes could prosper to the benefit of their shareholders, as well as wider society.
We believe a disciplined approach to thematic investing, focusing on themes grounded in reality and avoiding unsustainable fads, can offer investors the opportunity today to access tomorrow’s potential winners.
The value and income from the fund’s assets will go down as well as up. This will cause the value of your investment to fall as well as rise. There is no guarantee that the fund will achieve its objective and you may get back less than you originally invested.