Megatrends show investors the path forward
The search for trends that are worth investing in can be an overwhelming task. Anyone googling ‘trends’ will get more than 2 billion results. The search term ‘megatrends’ turns up 21 million hits, ‘investing in trends’ 652 000 hits and ‘investing in megatrends’ another 14 800 hits. ‘Unless you’ve lots of time on your hands and the inclination, you simply don’t take it on yourself to identify the interesting trends to invest in,’ says Philippe Delfosse, Equity Strategist at KBC Asset Management.
Investing in trends
Trend investing is not a gut feeling. It requires in-depth research, based on personal research and data research, but also on international studies and monitoring legal developments. ‘It sometimes seems that those researching trends entertain the dubious ambition of predicting the future. That’s certainly not the case. ‘It’s about identifying developments that shape the future and analysing their impact in a structured way,’ says Delfosse.
He gives the example of rising commodity prices and a booming circular economy. ‘Those are interesting trends. But the actual reason behind them is the scarcity of natural resource. That’s the trend, a trend which in turn triggers various other things.’
KBC Asset Management has accordingly defined 11 trends: climate change, demographic ageing, urbanisation, increasing global wealth, growing inequality, skills shortages, transformational technologies, the rise of data, the growing focus on health, changing lifestyles and natural resource scarcity.
It’s about identifying developments that shape the future and analysing their impact in a structured way
Philippe Delfosse, Equity Strategist at KBC Asset Management
Trend investing in practice
It’s one thing spotting trends, but another linking an investment approach to them. ‘As an asset manager, we examine things at a deeper look, seeing how companies react to future challenges and how they devise solutions to them,’ says Joris Dehaes, Equity Analyst at KBC Asset Management. In practice, the asset manager clusters companies together according to their role in society.
As an asset manager, we examine things at a deeper look, seeing how companies react to future challenges and how they devise solutions to them
Joris Dehaes, Equity Analyst at KBC Asset Management
For example, all companies that provide solutions to support our healthcare system are grouped together in the ‘growing focus on health’ theme. They include companies active in biotechnology, companies committed to making quicker and more accurate diagnoses and companies developing apps that monitor the state of people’s health, thus eliminating the need to visit a doctor or hospital each time for a check-up. Dehaes: ‘Grouping companies in this way enables investments to be made in megatrends.’
Winners of tomorrow
The big challenge, however, is to select those companies in each theme that are best placed to respond to specific trends. That means not only finding out which companies see the opportunities, but also assessing which companies could fall by the wayside in the short term because of their inability to respond adequately to the changing circumstances. Examples include companies ceasing certain operations or just starting up.
‘You have to be prepared to look at the broader picture. For instance, as an analyst, you don’t look for the company that will launch the first self-driving car, but you know that such cars are full of sensors and will be electric-powered, which means that the suppliers of sensors and batteries could be sitting on a gold mine,’ explains Dehaes.
KBC takes the same critical view of cybersecurity. This is an important them because of the increase in cyberattacks, the stricter laws in this area and the ever-growing budget that companies need to safeguard their security. In this theme, KBC Asset Management only selects companies using cutting-edge technology. These could be companies that use artificial intelligence to monitor computers, enabling them to detect hacking more quickly and to anticipate it from previous experience. Companies that get left behind are excluded from the portfolio. ‘Short-term uncertainties on the stock market don’t change the longer-term challenges we face. By choosing companies that respond to this situation, we pick the potential winners of tomorrow,’ concludes Dehaes.
Keen to start thematic investing too?
The information contained in this publication is for information purposes only and should not be considered as investment advice.