See why megatrends are an investment theme you may want to consider.
Oftentimes, change is inevitable. Sometimes, changes in investment trends happen quickly. But they can also happen gradually and we may not always grasp their potential to transform the world as they are developing.
Consider the gradual worldwide decrease in agricultural land per person, which is down nearly 50% since 1961. As this trend continues, new and more-efficient farming and food production may become more necessary to support the needs of a growing global population. The long-term agriculture megatrend has and continues to produce investment opportunities as companies seek to meet this growing global demand for food. And this is just one of a variety of megatrend investing opportunities that investors may be able to capitalize on.
If investing in a specific theme aligns with your client's objectives, megatrends might be a thematic investing opportunity to consider.
Zooming in on megatrend investing
Megatrend funds focus on understanding long-term growth in profits driven by forces such as demographics and/or resource scarcity. By identifying these gradually moving trends, megatrend investors may benefit from anticipating the effects. Some examples of potential megatrends that may reshape the markets include:
- Aging populations causing shifting consumption patterns
- A growing population requiring more efficient use of resources
Agricultural productivity megatrend
Fidelity has identified 2 important megatrends tied to resource scarcity and population growth for investors to consider—agricultural productivity and water sustainability.
Investment opportunities in the agricultural productivity megatrend include companies seeking ways to increase crop yields and/or grow food production amid a backdrop of a growing global population and declining per capita supply of arable land.
Indeed, global population is expected to reach almost 10 billion by 2050, up from more than 8 billion today, according to estimates from the United Nations. "In order to feed a population of 10 billion people, we will need over 50% more food in 2050 than we have today," says Steve Calhoun, manager of the Fidelity Agricultural Productivity Fund.
A growing middle class and rising wages have led to shifts in consumer preferences including healthier options and increased protein consumption, further increasing the need for greater productivity. "Traditional use of land resources simply cannot keep up with a growing global population," Calhoun notes. "Companies that are increasing crop yields, improving overall efficiencies, and developing new technologies are likely to benefit."
Water sustainability megatrend
Investment opportunities in this megatrend include companies developing efficiencies, extending the life cycle, and/or identifying affordable new technologies to deliver safe, reliable, or easily accessible water. Consider these dilemmas of water access highlighted by Janet Glazer, manager of the Fidelity Water Sustainability Fund
- Water is a finite resource and clean water scarcity is a top-5 global risk, according to the World Economic Forum.
- More than 1 billion people do not have access to clean water today, with 2/3 of the world's global population facing severe water scarcity and currently living without sufficient access to fresh water for at least 1 month per year. Ongoing extreme weather disruptions such as droughts, flooding, climate change, and insufficient infrastructure will only intensify this pressing challenge.
- Long-term trends, namely a growing global population, will likely increase heightened awareness and the need to address the problem.
- 4 billion people could be living in "severe" water stress conditions by 2050, some estimates say.
- There is a tremendous need to upgrade water infrastructure around the world and tackle these mounting challenges.
Companies that are focused on new emerging technologies may stand to benefit. Possible examples include water treatment, water analytics, and water infrastructure.
Is a megatrend theme for your client?
Fidelity offers 2 megatrend funds:
- Fidelity Agricultural Productivity Fund: Invests in companies helping to increase crop yields and grow global food production.
- Fidelity Water Sustainability Fund: Invests in companies helping to deliver safe, reliable, and easily accessible water.
Most or all of the investing risks associated with other categories of stocks exist for investments in companies that attempt to capitalize on megatrends. Due diligence should be done on any individual stock, fund, or other investment to fully understand its characteristics and risks.
While many megatrend funds are currently ETFs, there are a number of megatrend mutual funds to choose from as well. By their nature, thematic funds involve some form of active decision-making on how to turn the concept into a strategy for finding specific investments. This analysis and judgment can be enacted either through an actively managed fund, or through a rules-based approach. Regardless of the management style, investors may benefit from considering funds managed by firms with deep research resources to help define a theme and maintain the intended thematic focus over time. Thematic investing can enable investing in long-term trends or themes that the investor believes in, and thematic funds can allow finding opportunities that may cut across countries, sectors, and market capitalization. These funds can typically serve as a satellite holding to gain exposure to a theme the investor believes in alongside a broader diversified portfolio.
Companies involved in helping solve challenges created by megatrends might shape what the market looks like for years to come. If your client is interested in the long-term trends affecting our world, these investment opportunities may be worth considering.
Learn more about Thematic Investing, including Megatrends, clicking here.