Five Megatrends Changing the Way We Live, Work and Invest

The following is part of a series originally published by RBC iShares, a strategic alliance between RBC Global Asset Management and BlackRock Canada.

June 29, 2007 started off as just another Friday, with people going to work or school and waiting for the weekend to begin. Little did anyone know that at 6 p.m., the world would begin to dramatically change. That evening 164 U.S.-based Apple stores started selling the iPhone. While Apple’s then bulky mobile device started connecting people in ways they hadn’t been connected before, it also shifted people’s perception of what’s possible, especially when it comes to the ways in which technology can influence society. Its app ecosystem alone supercharged the social media revolution, spurred the rise of e-commerce, and disrupted industries, such as real estate and transportation.

Everyone now knows how the iPhone revolutionized the way we live, work and conduct business. What people may not appreciate, however, is just how rapidly technology has expanded since then. Within the last 15 years, vehicles have, in some areas, become autonomous; streaming video has revolutionized leisure time; and cloud-based collaboration tools have altered how – and where – we work. Now imagine what the next 15 years will bring. There’s no question that our world is going to evolve even more rapidly between now and 2037 than it has since 2007.

No one can predict with any certainty what might come next, save for one thing: society is undergoing large-scale and powerful secular shifts that will dramatically change our lives.

Rapid advancement in technologies is just one of the themes driving innovation. RBC iShares, a strategic alliance formed between RBC Global Asset Management and BlackRock Canada in 2019, has identified five megatrends as long-term forces shaping our future: technological breakthrough, demographics and social change, rapid urbanization, climate change and resource scarcity, and emerging global wealth.

“These are forces that are truly structural, so much so that they feel inevitable,” says Jeff Spiegel, Head of U.S. iShares Megatrend and International ETFs at BlackRock.

These megatrends aren’t just influencing society; they’re also affecting the investable universe, giving people more opportunities to buy into rapidly growing, game-changing companies, notes Spiegel. “These forces are so powerful and so long term that they become huge growth opportunities for the investors who can identify themes within them,” he says.

Five structural shifts changing the world

All five megatrends identified encompass several big ideas. ”Each of these are powerful, transformative forces that can change the trajectory of the global economy by shifting the priorities of societies, driving innovation and redefining business models,” says Steven Leong, Head of iShares Canada Product at BlackRock.

Technological breakthrough

You don’t have to be tech savvy to see how rapidly technology is evolving – just look around your home. In 2015, there were 15 billion internet-connected devices worldwide – gadgets that include voice activated assistants and smart home thermostats. That’s expected to grow to 75 billion by 2025¹. Everything from cybersecurity to health care to e-commerce technology is also rapidly evolving, especially since the pandemic began. Then there’s 5G, smart grids, robotics and automation, and other technologies that are still in their infancy that will have a major impact on our lives. According to RBC iShares, disruptive innovation will happen in two ways: through new solutions that can help resolve a significant constraint or challenge or via better alternatives to existing markets.

Demographics and social change

There’s been no shortage of awe-inspiring medical breakthroughs over the last few years, all of which are making people live longer and healthier lives. By 2040, the average global life expectancy is expected to reach 76 years, up from 72 today². That same year, an estimated 1.3 billion people will be 65 or above, up from about 700 million in 2019³. These increases will have a profound effect on health-care spending. Not only will health-care costs rise for every 65-plus person by 2040⁴, but we’ll see much bigger investments in therapeutics, biotechnology and precision medicine, where individuals are treated with highly specific treatments.

Rapid urbanization

Despite the fact that more people are working from home, with many having moved to smaller locales during the pandemic as flexible work arrangements have become more acceptable, cities are still growing at an exponential rate. Over the next decade, the biggest cities will get even larger. New York, for instance, is expected to add 1 million more people by 2030, Shanghai’s population could rise by 8 million, while Delhi’s population is estimated to climb by 9 million⁵. To meet that demand, massive investments in infrastructure, transportation, communication, internet capabilities and housing will be needed. It is estimated that there is already $2 trillion in unmet infrastructure needs in the U.S. alone⁶ – a figure that will only increase as cities get more crowded.

Climate change and resource scarcity

Addressing the effects of climate change is a global priority, as evidenced by the fact that over 135 countries have already pledged to be carbon neutral by 2050⁷.  An expanding population and rising demand for food, energy and materials, is also putting pressure on the world’s finite resources. It’s still an open question as to how exactly the world will reach net-zero emissions, and how it will overcome its resource challenge, but no matter what there will be major investments in technology, infrastructure and renewable energy. By 2040, for instance, it’s expected that 56 million electric vehicles (EVs) will have been sold – up from 6.6 million today⁸. To accommodate this increased use of EVs, the U.S. will have built 500,000 EV charging stations across the country by 2030⁹.  As well, 60 per cent of China’s electricity could come from renewables by 2030¹⁰.

Emerging global wealth

The world is only going to get wealthier, especially as the middle class in China and India continues to grow. By 2026, those two countries will have a combined population of about 3 billion people¹¹, with many of them beginning to accumulate assets. At the same time, 90 per cent of new middle class entrants are in Asia¹², while 44 people in India are escaping extreme poverty every minute¹³. As well, in 2020, 40 per cent of the world’s new billionaires came from China¹⁴, while 100 million South Americans have entered the financial system since the pandemic began¹⁵. This megatrend is about capturing newly affluent consumers in the emerging parts of the world. 

“In recent years, the desire to invest in intuitive and relatable themes has been a powerful influence on markets. It has also been an important factor motivating new generations of investors who are building portfolios for the first time. Strategies that seek to capture these powerful growth themes are an increasingly important complement to more traditional sectors and portfolio building blocks,” adds Leong.

Diversify through ETFs

Many of the sectors that can benefit from these megatrends are still in their infancy, which makes it difficult to determine which companies will succeed or fail over the next few decades. At the same time, a lot of these markets are inaccessible to retail investors - unless you’re an ultra-high net worth investor, you can’t directly invest in global infrastructure projects or private startup companies.

High-quality and well-diversified exchange-traded funds (ETFs) can be an accessible way to gain investment exposure to these megatrends.

ETFs can provide exposure to a diversified group of companies, including rapidly expanding startups and more-established operations.   

Investors can use thematic ETFs in a variety of ways, including as satellite investments to complement the core part of their portfolio (such as their Canadian equity or global equity holdings).

Learn more in How to Find and Research ETFs.

¹ Source: Statista, Internet of Things (IoT) Connected Devices Installed Base Worldwide from 2015 to 2025
² Statista, Projected global life expectancy 1990-2100, Jun 2019
³ 2019 Profile of Older Americans, U.S. Dept. of Health and Human Services. May 2020
⁴ Agency for Healthcare Research and Quality. Mean expenditure per person by age groups, United States, 1996-2018. Medical Expenditure Panel Survey. Generated interactively: May 18 2021
⁵ Source: United Nations Department of Economic and Social Affairs, The World’s Cities in 2018
⁶ McKinsey & Co. June 2020
⁷ Visual Capitalist, Jun 2021
⁸ CNN, Sep 2019
⁹ Yahoo News, Aug 2021
¹⁰ Nature.com, Oct 2020
¹¹ Visual Capitalist. "The Population Race: A 300-Year Look at China vs. India" Nov 2020
¹² Bank of America Merrill Lynch “10 things for the next 10 years, Nov 2019
¹³ Washington Post, Jun 2018
¹⁴ South China Morning Post as of February 2020
¹⁵ Mastercard, Nov 2020