“Megatrends” are powerful forces that can change the global economy, business and society, and can have a significant impact on our daily lives and investment decisions. One such megatrend is the rapidly aging global population, which is caused by increased longevity, slowing birth rates and lower child mortality.
I will share with you investment opportunities arising from this megatrend and show you how exchange-traded funds can be used by investors to capture such opportunities.
Using ETFs to capture investment opportunities that arise from an aging population
Aging population is an irreversible trend that has brought fundamental changes to society. In its World Population Prospects report, the UN Population Division forecasts an additional 1.2 billion people on the planet by 2030.
However, the distribution of these one billion people will not be equal across age groups or regions – 30 percent of the increase is predicted to consist of those aged 65 or over; by 2050, 50 percent of population growth overall is likely to come from Africa. These factors combined are creating unique investment opportunities.
As individuals age, their economic behavior changes and their healthcare needs increase, impacting a wide range of sub-sectors including pharmaceuticals, financials, elderly care and consumer products. Investors may consider riding on this trend and invest in companies that are positioned to benefit from the growing needs of an older segment of the global population.
Advances in technology and the creation of big data lead to the creation of thematic indices and also ETFs based on these.
Factors to consider when capturing investment opportunities from megatrends
Thematic indices are designed to capture the potential return of long-term trends. Many investors have already applied the principles of thematic investing, such as identifying investments that could benefit from a rising interest rate regime. But thematic investing extends far beyond economic policies, and it can potentially be most effective when used to identify opportunities in areas such as changing demographics, evolving consumer behaviors, innovative technologies, and the availability of natural resources.
Short-term investment approaches are therefore less likely to lead to favorable outcomes. What’s more, some thematic indices are more volatile than others, so investing in themes over shorter time periods could also lead to increased risk without increased return. Therefore, we believe combining thematic investments with other long-term growth investments can help diversify one’s sources of returns.
Last but not least, investors should also bear in mind that a long-term investment in thematic indices is by no means a static one: investment themes are constantly evolving. As a result, country exposures and weightings of thematic indices can change significantly over time, adding a level of dynamism to portfolios.
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