Identifying future trends and buying the stocks best placed to benefit from them ahead of the pack is arguably what all investors aspire one day to achieve.
Many probably watched in awe when the characters in Michael Lewis’ The Big Short predicted the US housing bubble and wondered, at least at one stage, why they never saw the successes of Google and Apple coming.
Of course, selecting the right horse to back from a universe of thousands of stocks isn’t simple. Even if you are fairly confident about certain megatrends playing out, such as climate change, robotic workforces or the world’s population ageing, picking the companies most likely to benefit from your conviction still represents a huge challenge.
Fortunately, the recent arrival of a spate of funds specifically designed to profit from structural trends could make this task a little easier.
Owning a basket of carefully-selected stocks that all cater to big shifts in consumption patterns can help to diversify risk and increase the chances of your client’s portfolio striking gold.
ETFs rise to the occasion
Passive investing enthusiasts will be pleased to hear that exchange-traded funds (ETFs) have been spearheading this move to offer retail investors thematic solutions. That includes the world’s largest asset manager BlackRock, which under its iShares arm launched four index-linked products last September.
After compiling a list of megatrends it believes should shape the global economy, political and social landscape for years to come, BlackRock unveiled ETFs linked to ageing populations, automation and robotics, breakthrough healthcare and digitalisation.
Joe Parkin, head of iShares UK retail and wealth, claims that appetite for these ETFs has been strong from day one. He credits part of this popularity to the huge selling power of thematic stories, RDR and the rise of people taking longer-term views when managing their own pensions.
Naturally, he’s also convinced that ETFs are the best vehicles to tap into megatrends. Thanks to a partnership with index provider Stoxx and financial research company FactSet, iShares now has the technology to screen big, medium and small companies generating in excess of 50 per cent of revenues from any given industry.
Once the stocks, which can range from 90 to 400, are identified, everything with a market cap of at least £200m is housed in a newly constructed equal weighted index.
By being able to filter through thousands of companies with the click of a button, Mr Parkin is extremely confident about iShares’ ability to compete with the hands-on expertise of active fund managers.
“With one click you can invest in a long-term structural trend that combines together anywhere between 90 and 400 stocks into one place,” he says. “The availability of data allows us to look at that in an enormous amount of scale and put it into an ETF in a similar way to an active manager.