"The Trend is Your Friend" | Economics Global

As society and the global economy continue to evolve, we identify notable long-term trends that offer opportunity for investors.

Why Long-Term Trends Matter

At the moment, we believe that the markets have not fully priced in the potential impact these long-term trends have on companies’ future revenue and earnings, especially in a post COVID-19 environment. Given this situation, these are some areas we believe have a lot of potential for investors:

  1. Healthcare: The convergence of gene-based technologies and data, as well as a recent pick-up in biotech research and development (“R&D”) to find vaccines and cures for some of the world’s most deadly illnesses, may speed up the development of new innovative healthcare drugs and techniques, and lead to increased earnings growth for successful companies. While innovation in the healthcare industry is certainly not new, the speed in which it is unfolding today, is. At this rate, we could see an increase in the pace of new treatment approvals over the next five years yielding over US$250 billion of new revenues by 2024 for successful companies. If even a fraction of that goes into biotech companies, the revenues of (successful) biotech firms could double from current levels over this time.
  2. Clean Energy: The global interest and speed in which the world is moving towards sustainable, clean energy is also quite impressive in our view as well. According to research firm Allied Market Research, the renewable energy market is expected to reach US$1.5 trillion by 2025, up from US$928 billion in 2017, growing at a constant annual growth rate of 6.1% during this time. Further, the decline in wind and solar construction costs in recent years, falling 13% and 37% respectively, between 2013 to 2017 has made renewable energy a cost-effective alternative to traditional fossil fuel energy sources. As a result, this is leading to a greater rate of adoption of cleaner energy solutions among governments, businesses, and households. Lastly, increasing public awareness over climate change and climate-related issues around the world will only continue to increase, prompting many in the public and private sectors to continue to adopt clean energy.
  3. Technological Evolution: The roll-out of new technologies such as artificial intelligence (“AI”), 5G wireless technology, autonomous vehicles, Internet of Things (”IoT”), remote work solutions, and other similar technologies is already beginning to usher in a “fourth industrial revolution”, changing society in a way, and at a pace, that has never been seen before in history. We are already seeing evidence that the COVID-19 pandemic is accelerating adoption of technologies such as cloud computing, AI, cloud security, and remote working. If this continues, in the next five to 10 years, we could see these industries reaching valuations over US$16 trillion in market size.

Long-Term Trends’ Investment Potential

According to our research, the most significant factor driving the potential outperformance of these trends, in comparison to the general market benchmark, is the potential growth rate in earnings of these industries. In the past, it was the industries and their companies with higher-than-expected earnings growth rates that outperformed over the past 20 years, despite valuation fluctuations, earnings revisions, and recessions. Though history does not repeat itself, it certainly does rhyme, as this is an occurrence we are once again seeing play out now, even in the midst of the COVID-19 pandemic. We believe that as these trends begin to become more mainstream, and begin to generate above-average growth levels, we expect investors to follow suit, as they always have with growth trends in the past.

How to Invest in These Trends

Though it takes a lot of research, analysis, and monitoring of the economic, geopolitical, and industrial landscapes to stay on top of these global trends, and spot the right investment opportunities, we believe there are a few key ways that investors can do so:

  1. Identify emerging trends across the global landscape, where you can identify regions, countries, sectors, industries, and/or companies that are actively investing, and/or engaging, in these long-term trends.
  2. Look for sectors, industries, and companies related to these trends that have high growth rates above their historical average and their peers.
  3. Look for investment products, such as thematic ETFs, whose investment strategy, and/or mandate, is to focus on these emerging themes.

In doing so, investors will be well-equipped to invest in, and capitalize on, the trends of the future.

© 2020 Economics Global Inc.

Content Disclaimer
Any views expressed here are those of Economics Global Inc. as of the date of this publication, are based on available information, and are subject to change without notice. This document does not constitute investment advice.
The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.

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