THIS IS AN ADVERTISING FEATURE
Megatrend strategies align an exciting story of future growth and potential with equity market exposure. Instead of being exposed to a benchmark, like the FTSE 100 or the Euro STOXX 50, you can be exposed to a theme. As equities go up and down, investors in megatrend focused strategies might want to hold onto their position longer than traditional equity strategies because they believe that even if the performance is challenged in the short-term, they can see the theme continuing to grow over the long-term. It is easier to see and feel the continued efficacy of ‘cloud computing’ or ‘cybersecurity’?more tangible growth-oriented concepts than a broad-based global equity index.
Change is the only constant in markets
Holding assets in a savings account is not going to bring a high rate of return in the foreseeable future. Prior to the Global Financial Crisis of 2008-09, this had been different, and it would have been reasonable to expect a rate of 4% or 5% on a savings account.
In response to the crisis, central banks embarked on a programme of quantitative easing. To varying degrees over a period of about 12-13 years, companies with higher degrees of risk performed strongly, as they had easy access to capital and investment. 2019 and 2020?coinciding with further liquidity injections due to the Covid-19 pandemic?saw incredible returns in companies very early in their life cycles. For instance:
-The world decided that a focus on decarbonisation and electric vehicles was important and exciting?so a company touching on solid-state battery technology, QuantumScape saw rather excessive volatility?both positive and negative in terms of direction--even in a pre-commercialisation phase of its history.
-By now, most of us will be familiar with, or at least heard of mRNA technology being used in health care. Why? Pfizer, BioNtech and Moderna, among others, used this technology to make the Covid-19 vaccines in record time. Moderna went from being a firm that many had never heard of to having a product needed all across the world.
-A lot of us can think about to life prior to the Covid-19 pandemic?how many work-related video calls were we doing? Now, the concept of doing video calls, whether through Microsoft Teams, Zoom, Cisco Webex, or something else, is ubiquitous. It is now difficult to imagine not doing them.
Focus on the risk you want to take
Megatrends allow the user to decide which risk that they want to focus on, in contrast to focusing on broad market benchmarks. By design, broad market indices will deliver a broad exposure that diversifies away many of the individual company or industry risks and exposes the investor to the risk of the full market, which usually means that things like shifting policy at central banks.
Megatrend strategies are not inherently immune?we are seeing megatrend strategies respond to shifting announcements in central bank policy. However, take the example of QuantumScape. If the company can commercialise a solid-state battery technology broadly applicable in various applications, the share price will trade more based on the ground-breaking nature of that development and not necessarily based on what central banks are saying. The longer-run risk for that company is therefore based more on whether they will execute on their vision and less about what could be happening in the broad market. For many, a company like QuantumScape might be seen as too volatile or risky, so holding the single stock isn’t reasonable. A broader strategy focused on the energy storage megatrend, however, will diversify across companies that can succeed as new energy storage developments occur, but are not dependent on the execution risk of a single stock.
How long? At least 10 years
There is no single period of time that denotes a megatrend versus a tactical trade. If someone really believes in a theme, they should try to think of an investment period of at least 10 years. This way, there is an ample chance to experience a few different environments where the typical megatrend should have its mix of strong performance years, more neutral performance years, and a few poorer performance years. Since it’s nearly impossible to predict the strong years ahead of time, it is usually best to stay invested, recognising that human history, much less megatrends, don’t advance in straight lines.
To learn more about Megatrends, please visit: Megatrends | WisdomTree Europe
To access a list of relevant Megatrends products within the AJ Bell Youinvest platform, please visit: AJ Bell Youinvest - Megatrends
This material is prepared by WisdomTree and its affiliates and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date of production and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by WisdomTree, nor any affiliate, nor any of their officers, employees or agents. Reliance upon information in this material is at the sole discretion of the reader.
Past performance is not a reliable indicator of future performance.
