Welcome to Season 2, Episode 4 of Meet the Expert® with Elliot Kallen!
Most major economies are undergoing massive shifts in their demographic profiles. Resource scarcity and climate change are coming under greater scrutiny. Rapid urbanization is pulling in significant investments and changing consumer behavior, especially in high-growth emerging economies. Simultaneously, the increasing ubiquity of technology is redefining business models and creating widespread disruption.
These forces, also known as megatrends, are giving rise to a new set of powerful investment themes.
In this episode, Elliot Kallen brings on Jeff Spiegel of BlackRock to discuss the macro forces shaping megatrends.
U.S. Head of iShares Megatrend and International ETFs, blackrock
Jeff Spiegel is U.S. Head of iShares Megatrend and International ETFs. Mr. Spiegel earned a BA degree in philosophy and history from Brown University.
What are megatrends?
Megatrends are the forces—structural shifts in our global economy—that affect our investment thinking.
For perspective, Hal R. Varian reports:
1 billion hours ago, humanity emerged.
1 billion seconds ago, IBM released the first PC, and
1 billion Google searches appeared this morning.
Structural themes vs. cyclical themes
Megatrends focus on structural themes.
The long-term opportunities driven by powerful transformations in our economy and society
Examples include the rise in aging populations, middle class consumers in emerging markets, and long-term adoptions of new technologies.
The shorter-term opportunities that occur at somewhat regular short or medium term intervals, typically based on changes in the business cycle
Examples include interest rates, commodity pricing, the movement of the overall stock market—in particular, sectors. Those rise and fall, and timing them can be really challenging.
The Goldilocks Problem
Single stock picking can be too narrow. Low diversification leads to increased risk.
Traditional indexes can be too broad. Broad indexes may be too diversified to offer targeted thematic exposure.
For that reason, the megatrend approach may be just right for focused exposure. By picking trends over single winners, investors can capitalize on the long-term, transformational forces driving our global economy and society.
What are today’s megatrends?
Megatrend #1: Technological breakthroughs
Long-term adoptions of technology, including AI, robotics, and cybersecurity
The global population is moving in the direction of high connectivity.
For instance, when asked what they would rather sacrifice for one week, Americans reported:
Moreover, in 2015, there were 15 billion Internet-connected devices across the globe. In 2025, that number will quintuple to 75 billion Internet-connected devices.
Megatrend #2: Demographics & social change
Aging populations around the world
The U.S. economy is facing two key demographic shifts:
First, the 60+ demographic is rapidly increasing across the globe.
In 2015, there were 1 billion global citizens over the age of 60. In 2025, that population will double to 2 billion.
Next, at home, U.S. healthcare spending continues to rise.
In 2017, $4 trillion was spent on national healthcare in the U.S. In 2027, that number is expected to rise to $6 trillion.
That indicates the rising importance of two megatrends:
- Genomics, which is the study of using an individual’s DNA to tailor medical treatment. The first whole human genome sequencing cost about $2.7 billion in 2003. Today, it costs $699.
- Immunology, or the study of using the body’s immune system to fight disease. With over 32 FDA approvals and rising, immunotherapy is already boosting lung, renal, brain, and skin cancer survival rates.
Megatrend #3: Rapid urbanization
The rise of cities, especially in rising markets
We’re beginning to see the rise of megacities, or cities with a population of over ten million people.
In 2030, we can expect to see:
- 6 percent growth in population in Los Angeles and New York;
- 10 percent growth in São Paulo;
- 27 percent growth in Cairo;
- 28 percent growth in Shanghai
- 37 percent growth in Delhi;
- And 43 percent growth in Dhaka.
In the most advanced megacities of the future, investors will start to see smart science and big data being used to improve infrastructure and quality of life for its residents.
Cities will invest $41 trillion through 2036 to leverage the internet of things.
Demographics & social change
Eight in 10 U.S. residents 65 and older live in metropolitan areas.
MTA is spending $22B more on infrastructure upgrades over the next five years.
Climate change & resource scarcity
Over 100 cities worldwide are now powered primarily by renewable energy.
Emerging global wealth
440 EM cities will make up half of global GDP growth between 2010 and 2025.
Megatrend #4: Climate change & resource scarcity
Government, societal, and consumer preferences shifting towards cleaner solutions
We’re currently looking at a $2 trillion gap to meet implement renewable energy targets:
$1.1T in Asia
$225B in Africa
$218B in Latin America
$30B in the Middle East
$16B in the U.S.
And $151B elsewhere
Megatrend #5: Emerging global wealth
The rise of the middle-class consumer and digital economy in emerging markets
In the last twenty years, developing economies have been lifted by the rising tide of globalization and manufacturing shifting to Asia.
China mints 2 billionaires per week.
150 million people enter the global middle class every year, of which 90 percent are from Asia.
44 people escape extreme poverty in India every minute.
Within the next 4 years, India is expected to overtake China as the most populous nation in the world.
The emergence of a middle class, particularly in China, has made it an important destination for global companies looking for significant growth potential.
MegaRules of Investing
- 1Weight for tomorrow. Today's leaders won't necessarily be tomorrow's leaders. Investors must keep a pulse on megatrends, from technological breakthroughs to social and demographic changes.
- 2Connect the value chain. If you want to invest in one of these themes, you must invest in the value chain, or the ecosystem behind each megatrend.
- 3Go beyond borders. Don’t limit yourself to U.S. innovation. Access innovation and opportunity around the world.
As investors, we must continually rebalance, reinvest, and reimagine portfolios to meet the opportunities presented by the future.
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DISCLAIMER: Prosperity Financial Group and Meet the Expert® with Elliot Kallen do not make specific investment recommendations on Meet the Expert® with Elliot Kallen or in any public media. Any specific mentions of funds or investments are strictly for illustrative purposes only and should not be taken as investment advice or acted upon by individual investors. The opinions expressed in this episode are those of the Meet the Expert® with Elliot Kallen guests, and not necessarily of Elliot Kallen or Prosperity Financial Group.