Text size

Megatrends: From secular growth drivers to sustainable investment themes

Listen to article

This is a sponsored article from Pictet Asset Management.

Megatrends are powerful social, demographic, environmental and technological forces of change reshaping our world and the future. They are also one of the success factors behind Pictet AM, one of the world’s largest thematic equities managers.

A generation ago, the phrase ‘carbon footprint’ would have meant little to most of us. But today, our lifestyle, consumption choices, and increasing awareness of sustainability – from what and how we eat to the modes of transport we use – are increasingly shaped by ecological considerations. Think about plant-based diets, electric or autonomous vehicles, and the energy transition to renewables. Protecting the environment is now a priority for consumers, companies, and governments as extreme temperatures are becoming part of our day-to-day lives.

This example illustrates trends reshaping our world over a long-time horizon – what Pictet AM calls ‘megatrends’.

Reshaping the future

Megatrends are the disruptive socioeconomic, environmental and technological forces that shape our world and the future. The virtualisation of the economy, the rapid expansion of cities and the depletion of the Earth’s natural resources are just some of the structural trends transforming the way countries are governed, companies are run, and people live their lives.

The DNA of Pictet AM’s thematic investing franchise

Because megatrends are so disruptive, they can be a crucial source of a company’s long-run revenue and earnings growth. That is why Pictet AM has used megatrends as the basis for each of its thematic equity portfolios for over two decades. For a trend to qualify as an investible megatrend, it must possess the potential to exert a lasting impact on large parts of the global economy over at least a decade. It must also demonstrate that it can catalyse long-term growth and give rise to new business opportunities.

Pictet AM has tackled this by constructing a megatrends framework in collaboration with experts at the Copenhagen Institute for Futures Studies (CIFS), a global research and advisory firm known for its expertise in the field. The firm also draws on the insights provided by its 13 Thematic Advisory Boards. These groups of distinguished industry practitioners, scientists and academics help Pictet AM monitor megatrends and ensure the continued relevance of their investment themes and opportunity sets.

Pictet AM’s megatrend framework: Where the themes converge

Building on a more than decade-long collaboration with CIFS, Pictet AM has developed an investible megatrends framework specifically designed to be applicable to thematic equity portfolios. It consists of 21 megatrends organised in six clusters.

Source: Pictet Asset Management, September 2023

The megatrend framework helps define and monitor themes that form part of its investment universe. The process involves gauging the extent to which a particular megatrend is a long-term source of growth for each of its thematic equity strategies.

This analysis is conducted within Pictet AM’s investment teams with, at times, the involvement of the CIFS and the firm’s thematic advisory boards. Aggregated at the portfolio level, the assessments aim to identify the five to eight most important megatrends for each thematic investment strategy.

Viewed through this prism, for example, Pictet AM’s global environmental theme, which invests in companies in clean energy and water, agriculture, forestry, and other areas of the environmental value chain, is powered by eight of the megatrends within its framework: virtualisation and dematerialisation, environmental quality, climate change, resource scarcity, biodiversity and ecosystem services, urbanisation, economic growth, and the focus on health.

Another example is the robotics theme, which aims to capture opportunities in three main areas: industrial automation, robotic solutions, and enabling technologies.

Pictet AM can also identify themes which have a social tilt. The premium brands theme is an example. It covers the companies that marry excellent premium quality goods and services with consumer aspirations, aiming to capitalise on the new ‘experiential luxury’ phenomenon.

Megatrend mapping for three selected thematic strategies

Source: Pictet Asset Management, September 2023

After mapping the megatrends according to different themes, Pictet AM’s investment managers then track the evolution of each of the megatrends by monitoring selected data points and indicators. While this is not a high-frequency process — the relevant megatrend-related data is usually annual at best — it can serve as a basis for validating the long-term investment thesis for segments of the thematic portfolio. Over time, tracking such data can also be the basis for adjusting the thematic universes.

Pictet AM can better identify companies with the most promising long-term investment potential by analysing and harnessing megatrends in this way.

Achieving sustainability through thematic investing

As active managers, Pictet AM believes it has a responsibility not only to its investors, but to society. The firm’s intention is to contribute to positive societal and environmental outcomes.

Pictet AM intends to minimise harm from all its thematic strategies. As a result, the firm integrates environmental, social and governance (ESG) factors into its strategies and considers sustainability risks when evaluating investment risks and opportunities. All its strategies exclude companies with significant exposure to controversial activities such as weapons, gambling, and thermal coal extraction. The firm also conducts engagement and exercises voting rights systematically as part of active ownership responsibilities. Finally, as Pictet AM believes transparency is key, it publishes extensive sustainability and impact reports for every one of its thematic strategies every year.

In addition, Pictet AM aims to achieve a dual objective, with both a positive environmental and/or social impact alongside an attractive risk/return.

To learn more about megatrends and thematic investing strategies, please click here.

Important Information
The issuer of this material is Pictet Asset Management (Hong Kong) Limited and Pictet Asset Management (Singapore) Pte Ltd. The information and data presented in this material are for information purposes only and are not to be considered as an offer or solicitation to buy, sell, or subscribe to any securities or financial instruments in any jurisdiction. Investment involves risk. Past performance is not a guarantee or a reliable indicator of future performance. Before making investment decision, investors should refer the offering documents. The value and income of any of the securities or financial instruments mentioned in this document may fall as well as rise and, as a consequence, investors may receive back less than originally invested. Information, opinions and/or estimates expressed in this material reflect a judgment at its original date of publication and are subject to change without notice. They are not prepared for any particular investment objectives, financial situation or requirements of any specific investor and do not constitute a representation that any investment strategy is suitable or appropriate for an investor’s individual circumstances or otherwise constitute a personal recommendation. Any index data referenced herein remains the property of the Data Vendor. Data Vendor Disclaimers are available on www.am.pictet in the “Resources” section. If in doubt, please seek independent advice.

For Hong Kong investors: This material has not been reviewed by the Securities and Futures Commission or any other regulatory authority.

For Singapore investors: This material is intended only for institutional and accredited investors and it has not been reviewed by the Monetary Authority of Singapore.

This is a sponsored article from Pictet Asset Management.

Related Tags