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Investing in the future

19th April 2019

Investing in the Future – what are Megatrends?

Many of us will have our own interpretation of what is the difference between a fad and a trend, but in the investment world, it’s a bit more scientific. The graph below gives some idea as to the timescale of all the definitions including Megatrends.

Graph showing the impact of trends over time.

Pictet Asset Management
Source: Pictet Asset Management

So, what are Megatrends? The definition, according to Pictet Asset Management is:

Megatrends are a discrete group of powerful social, demographic, environmental and technological forces of change that are reshaping our world. These trends evolve independently of the economic cycle, and while they may develop in different ways and at a different pace, they each possess the capacity to redraw the financial landscape.

These changes can have a serious impact on existing industries and how they respond to those changes. The motor industry is a good example of that just now. Concerns about climate change, health issues and the advances in technology are reshaping the industry, and re-shaping it fast.

In the UK the decline of cars with diesel engines has been dramatic. In 2017, diesel powered cars were on parity with petrol. They now only represent 32% of sales with the forecast to go much lower.

As a result, Jaguar Land Rover, whose vehicles were 90% diesel, went on a 3-day week at the end of 2018 to combat the decline in their sales.

Contrast this with the dramatic growth of electric vehicles globally, albeit from a very small base. One in every twelve cars bought in the UK in August 2018 was electric. Again, this number is only going to go in one direction.

And because the technology involved in electric vehicles is so very different, it has allowed new entrants to the marketplace. Who would have imagined that the board of General Motors would be considering tech companies such as Apple and Google as being competitors a few years ago?

The established manufacturers are responding and most of the main companies are investing in or producing electric powered cars, but they have lost the early mover advantage of companies like Tesla and Nio.

From an investment point of view, understanding and interpreting Megatrends becomes increasingly important when looking to the future. Of course, it’s not an easy task because with time scales of 15 years or more, when much can happen during that time.

At present, Artificial Intelligence (AI) is one of the Megatrends that is being considered by the investment industry. What impact will AI have on the services sector? Will there be significant redundancies as a result of robotics that are capable of data entry; intelligent phone systems replacing call centres and algorithms making better decisions more quickly than humans? All questions that need to be considered when considering future investment.

It is important therefore to consider the wider changes going on in the world and to try and interpret what impact that they might have.