June 29, 2007 started off as just another Friday, with people going to work or school and waiting for the weekend to begin. Little did anyone know that at 6 p.m., the world would begin to dramatically change. That evening 164 U.S.-based Apple stores started selling the iPhone. While Apple’s then bulky mobile device started connecting people in ways they hadn’t been connected before, it also shifted people’s perception of what’s possible, especially when it comes to the ways in which technology can influence society. Its app ecosystem alone supercharged the social media revolution, spurred the rise of e-commerce, and disrupted industries, such as real estate and transportation.
Everyone now knows how the iPhone revolutionized the way we live, work and conduct business. What people may not appreciate, however, is just how rapidly technology has expanded since then. Within the last 15 years, vehicles have, in some areas, become autonomous; streaming video has revolutionized leisure time; and cloud-based collaboration tools have altered how – and where – we work. Now imagine what the next 15 years will bring. There’s no question that our world is going to evolve even more rapidly between now and 2037 than it has since 2007.
No one can predict with any certainty what might come next, save for one thing: society is undergoing large-scale and powerful secular shifts that will dramatically change our lives.
- technological breakthrough
- demographics and social change
- rapid urbanization
- climate change and resource scarcity
- emerging global wealth
These forces are so powerful and so long term that they become huge growth opportunities for the investors who can identify themes within them.
Jeff Spiegel,
Head of iShares Megatrend, Sector and International ETFs, BlackRock
These megatrends aren’t just influencing society; they’re also affecting the investable universe, giving people more opportunities to buy into rapidly growing, game-changing companies, notes Spiegel.
Five structural shifts changing the world
All five megatrends identified encompass several big ideas. “Each of these are powerful, transformative forces that can change the trajectory of the global economy by shifting the priorities of societies, driving innovation and redefining business models,” says Steven Leong, Head of iShares Product, BlackRock Canada.
Technological breakthrough
You don’t have to be tech savvy to see how rapidly technology is evolving – just look around your home.
In 2015, there were 15 billion internet-connected devices worldwide – gadgets that include voice activated assistants and smart home thermostats. That’s expected to grow to 75 billion by 2025.1
Everything from cybersecurity to health care to e-commerce technology is also rapidly evolving, especially since the pandemic began. Then there’s 5G, smart grids, robotics and automation, and other technologies that are still in their infancy that will have a major impact on our lives. We expect that disruptive innovation will happen in two ways: through new solutions that can help resolve a significant constraint or challenge or via better alternatives to existing markets.
Demographics and social change
There’s been no shortage of awe-inspiring medical breakthroughs over the last few years, all of which are making people live longer and healthier lives. By 2040, the average global life expectancy is expected to reach 76 years, up from 72 today.2
That same year, an estimated 1.3 billion people will be 65 or above, up from about 700 million in 2019.3
These increases will have a profound effect on health-care spending. Not only will health-care costs rise for every 65-plus person by 2040 , but we’ll see much bigger investments in therapeutics, biotechnology and precision medicine, where individuals are treated with highly specific treatments.
Rapid urbanization
Despite the fact that more people are working from home, with many having moved to smaller locales during the pandemic as flexible work arrangements have become more acceptable, cities are still growing at an exponential rate. Over the next decade, the biggest cities will get even larger.
New York is expected to add 1 million more people by 2030, Shanghai’s population could rise by 8 million, while Delhi’s population is estimated to climb by 9 million.5
To meet that demand, massive investments in infrastructure, transportation, communication, internet capabilities and housing will be needed. It is estimated that there is already $2 trillion in unmet infrastructure needs in the U.S. alone – a figure that will only increase as cities get more crowded.
Climate change and resource scarcity
Addressing the effects of climate change is a global priority, as evidenced by the fact that over 135 countries have already pledged to be carbon neutral by 2050. An expanding population and rising demand for food, energy and materials, is also putting pressure on the world’s finite resources.
It’s still an open question as to how exactly the world will reach net-zero emissions, and how it will overcome its resource challenge, but no matter what there will be major investments in technology, infrastructure and renewable energy.
By 2040, for instance, it’s expected that 56 million electric vehicles (EVs) will have been sold – up from 6.6 million today. To accommodate this increased use of EVs, the U.S. will have built 500,000 EV charging stations across the country by 2030. As well, 60% of China’s electricity could come from renewables by 2030.10
Emerging global wealth
The world is only going to get wealthier, especially as the middle class in China and India continues to grow. By 2026, those two countries will have a combined population of about 3 billion people , with many of them beginning to accumulate assets. At the same time, 90% of new middle class entrants are in Asia , while 44 people in India are escaping extreme poverty every minute. As well, in 2020, 40% of the world’s new billionaires came from China , while 100 million South Americans have entered the financial system since the pandemic began.15 This megatrend is about capturing newly affluent consumers in the emerging parts of the world.
In recent years, the desire to invest in intuitive and relatable themes has been a powerful influence on markets. It has also been an important factor motivating new generations of investors who are building portfolios for the first time. Strategies that seek to capture these powerful growth themes are an increasingly important complement to more traditional sectors and portfolio building blocks.
Steven Leong,
Head of iShares Product, BlackRock Canada
Diversify through ETFs
Many of the sectors that can benefit from these megatrends are still in their infancy, which makes it difficult to determine which companies will succeed or fail over the next few decades. At the same time, a lot of these markets are inaccessible to retail investors - unless you’re an ultra-high net worth investor, you can’t directly invest in global infrastructure projects or private startup companies.
High-quality and well-diversified exchange-traded funds (ETFs) are a simple way to access these megatrends. On May 2, RBC iShares launched four funds to take advantage of these megatrends:
These ETFs provide exposure to a diversified group of companies, including rapidly expanding startups and more-established operations. XEXP, for instance, invests in nine technology themes that are expected to bring significant economic benefits to the companies that use them. Areas include big data and analytics, cloud computing, fintech innovation, hyperconnectivity and nanotechnology, among others. XHAK gives investors access to next-generation cybersecurity operations involved in such areas as biometric authentication and encryption operations; XDNA focuses on genomics and immunology, two of the fast advancing fields of biotechnology; while XCLN holds companies in the clean energy space, such as biomass and biofuel energy, geothermal energy, solar energy and hydro-electric turbines.
"We’ve been really rigorous in ensuring that a particular thematic ETF can truly capture the promise of that megatrend,” says Spiegel, adding that it’s also tapped into its global network of active investors and its Investment Institute, which studies global trends and publishes research, to determine how best to construct these products.
Investors can use these thematic ETFs in a variety of ways, including as satellite investments to complement the core part of their portfolio (such as their Canadian equity or global equity holdings). “We’re creating products for the long term,” he says. “And so, while investors can use them tactically, we see larger demand coming from those who want to invest in some of the most exciting opportunities, over time."