Investing in Megatrends

In contrast, identifying ongoing and sustained population, environmental and social trends would appear to be a somewhat easier task. Some of these so-called "megatrends" have, in effect, been running for several hundreds of years – or even longer! As they are phenomena that carry on with a high degree of certainty, they provide the discerning investor with plenty of opportunities over time.

On this score, the trend of the rising global population is a case in point. According to the United Nations, there will be 40% more humans peopling the Earth by 2050. This expansion in our numbers will inevitably give rise to sweeping changes in several areas. Let's take farming or water supplies as examples. It is already a considerable challenge today to provide enough to feed the whole of the world's population, so what will things be like tomorrow?

Arable land is shrinking at an alarming rate and the pace of urbanisation is quickening, especially in emerging nations. Farming yields at present are going to have to be doubled over the next forty years just to keep the average per capita daily intake of calories at the same levels as today. Our forebears managed to avoid the predicted food shortages in the post-Industrial Revolution era thanks to discoveries made in the areas of fertilisers and seeds. As things stand now, a new agricultural revolution is underway as several companies, including some listed on stock markets, are already positioning themselves as skilled experts in boosting farm yields. Production of cereals, meat and other farm produce is, however, an economic activity that requires vast quantities of water. Supplying fresh water to farmers, businesses and individuals constitutes one of the most daunting challenges facing us in the coming years. Unless we manage to increase supplies, many people round the globe are going to have to grapple with some serious problems. The issue is complicated even further by the fact that demand for fresh water is climbing twice as fast as the population is expanding. If today's trends are sustained, one-third of mankind will, by 2025, be facing chronic water shortages. The shares of some companies providing solutions, services and infrastructure for the supply of water, in both the developed and emerging worlds, are looking particularly attractive.

Moving on to another area, the ageing of the population in developed nations is another ongoing trend, just like the dwindling birth rate. As a result of this, the health-care sector will have to continue being expanded. On this front, biotechnology companies and those active in manufacturing generic medicines look particularly well placed to deliver new medicines that are more effective and cheaper, respectively. These two sub-sectors on equity markets have consistently performed strongly: for instance, the NASDAQ Biotech index handsomely outperformed world shares overall over the past 10 years.

The rise in individuals' purchasing power in emerging countries has also been unleashing a wave of radical social and economic changes, for instance causing significant shifts in consumers' spending habits. A classic example can be seen in sales generated by Moët Hennessy Louis Vuitton (LVMH) in China, which multiplied eleven-fold between 2003 and 2008. From today's perspective, all the evidence suggests that the Chinese are set to become the most voracious buyers of luxury goods in the world by 2011.

Moreover, protecting our environment will remain a major concern for future generations. By investing in the development of clean energies, we can both contribute towards safeguarding our planet and undoubtedly earn handsome gains from the stock market as well. In the USA, some 150 billion dollars are earmarked for clean-energy projects over the next 10 years. The US Administration's economic stimulus package includes a further 118 billion to be invested in 'green' energy sources. Furthermore, China is set to allocate some 218 billion to this whilst Europe will also be pumping funds into this area so as to meet the EU Commission's target of 20% of energy consumed being from renewable sources by 2020.

Themed investment plays have often been criticised as being little more than an investment strategy geared towards jumping on the latest bandwagon. Nothing could be further from the truth. Our experience has shown that investing in megatrends is a straightforward, but effective way to lock on to the advances achieved by long-term growth sectors. The key to success, though, lies in disciplined investment management and rigorous stock-picking when seeking to tap into any of these various plays that can be considered to be megatrends.