To be a successful equity investor, it's important to understand how the ups and downs of the economy can affect a company's profitability. But this knowledge alone won't ensure investment success. There are other, non-economic, factors that can have just as strong a bearing on the prospects of businesses or industries. These ‘megatrends' include changes in the environment, technological development and societal beliefs and behaviour.
FIG. 1 THE MEGATRENDS TRANSFORMING THE WORLD
Over the past 20 years, and in collaboration with experts such as the Copenhagen Institute for Futures Studies, Pictet Asset Management has dedicated significant resources to the analysis of megatrends and how investors might profit from these powerful forces.
Our research has uncovered 14 distinct structural forces of change (Fig. 1) that, in turn, have provided the foundations for our distinctive family of megatrend-focused thematic equity strategies.
Megatrends in the water industry
The development of our Water strategy shows how megatrends can give rise to investment opportunities.
In the late 1990s, we discovered that the water industry was about to be transformed by a number of environmental and societal trends.
Climate change and urbanisation - the seemingly unstoppable migration of the world's population from the country to the city - threatened to speed up the depletion of the planet's water resources. At the same time, cities worldwide were increasingly turning to private firms to manage their water resources.
As a result, many companies in the water industry were becoming more investible than they had been for years, prompting us to launch Water fund, the first of its kind and one that would concentrate investments in specialist providers of water preservation and recycling technologies.
FIG. 2 MEGATRENDS AT PLAY IN THE WATER INDUSTRY
Megatrends: the forces powering thematic equities
All of the thematic equity portfolios we have launched since pursue the same approach as our pioneering water strategy. Each has been specifically built to capitalise on structural forces of change that evolve independently of the economic cycle. Fig. 3 shows the megatrends underpinning the prospects of companies in our Clean Energy strategy - among which are sustainability - or society's heightened concern for the environment - and technological development, which has resulted in a sharp drop in the production costs of renewable power such as wind and solar.
FIG. 3 THE MEGATRENDS SHAPING THE CLEAN ENERGY INDUSTRY
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