ETFs - Spring 2017 

How to identify future trends in ETFs

  • Learn the trends and themes investors can get exposure to through ETFs.
  • Understand why ETFs might be a suitable vehicle through which to access megatrends.
  • Grasp how thematic active and passive investing compares.
CPD
30min
How to identify future trends in ETFs

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. 

Game-changing data

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.

Comments

CPD
30min
  1. BlackRock has a range of ETFs linked to megatrends it has identified, but which one of these is not one of those themes?

  2. An ETF investing in long-term trends will offer investors exposure to how many stocks in one place, according to Mr Parkin?

  3. Mr Khalaf is concerned about what regarding ETFs?

  4. As some big themes have gone bad over the years, Ms Hudson suggests funds should hedge their bets by doing what?

  5. Mr Parkin claims the appetite for thematic ETFs has been strong,but which one of these is not a reason for that popularity?

  6. The majority of stocks exposed to heavily advertised megatrends can quickly appear what?

Nearly There…

You have successfully answered all the questions correctly, well done! To bank your CPD please complete the form below.

What did you learn from undertaking this CPD exercise?

Why did you undertake this piece of learning?

Banked!

Congratulations, you have successfully completed and banked this piece of CPD

Already Banked!

You have already banked for this article.

To bank your CPD you must or

Register

One or more questions have been incorrectly answered,
 please review your answers and try again.

Please enter what you have learnt and why you completed this CPD.

More Investments CPDSee my completed CPDSee all CPD