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Not all investable trends and themes are about fancy tech innovation

Not all investable trends and themes are about fancy tech innovation

27-11-2020 | インサイト
While some of the most attractive trends and thematic investing narratives have to do with technology and innovation, it’s not always the case. In fact, some of the timeless aspects of life, such as the bond between humans and animals, or sociodemographic shifts which unfold slowly but inexorably, turn out to be an exciting playground for investors.
  • Steef  Bergakker
    Steef
    Bergakker
    Senior Portfolio Manager
  • Sam Brasser
    Sam
    Brasser
    Analyst

Speed read

  • Tech innovations are arguably the most far-reaching type of change
  • But other trends, like sociodemographic changes, are also important
  • The steady rise in pet care spending provides a good illustration

Trends and thematic investing strives to benefit from cumulative economic profits that compound over time, as the fruits of high-return investments are harvested. High-return opportunities typically emerge under the influence of profound changes in our socioeconomic environment. These changes can be identified as megatrends and form the backbone of a robust trends and thematic framework.

Megatrends can bolster an industry’s long-term appeal by providing lasting tailwinds of growth and sustained profitability. But they also have the power to destroy the fortunes of an industry by rendering certain business models or products obsolete or less desirable. In other cases, they can exert a positive influence by facilitating the emergence of new business models and growth opportunities.

Technological innovations are arguably the most far-reaching type of change. But they are by no means the only type

Technological innovations are arguably the most far-reaching type of change, in terms of creating investment opportunities. But they are by no means the only type. Structural changes in demographics, in consumer attitudes, or in the way we model our institutions, also play a crucial role in shaping our future and can offer very attractive prospects.

Pet shop fans

The steady rise in pet care spending is a case in point. The pet care market offers moderate, but stable growth prospects. It is currently worth USD 190 billion and is expected to grow 5% annually1. This projected growth will mainly be driven by the surge in pet numbers and increased spending per pet – related, for example, to fresher, healthier food and better animal healthcare.

Pet ownership is not just rising globally – owners are also spending more and more on their loyal companions. The reason is that these non-human companions are increasingly being treated as family members, with all the perks and benefits this brings. Some millennials even see their pets as genuine alternatives to children.

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Figure1: Total US pet industry expenditure

Source: American pet product association (APPA), February 2020.

But the pet care market does not just offer moderate growth prospects, it also presents a relatively resilient profile. In the US, for example, pet care spending continued to grow even during the financial crisis of 2008-20092. The ‘humanization’ of pets is a typical example of the type of a broad sociodemographic shift that Robeco aims to benefit from with its Global Consumer Trends strategy.

Another example of promising non-tech-related trends which we consider in our strategies is healthy aging. Due to the aging population, healthcare costs and pension liabilities are rising sharply globally, and need to be contained. Governments will be unable to pay for ever-increasing healthcare and pension bills. Within healthcare budgets, we expect more focus on prevention than curing.

Next to a growth opportunity for the market in health screening tools, this should also provide a growth path for products and services related to a healthy lifestyle, including regular exercise and healthy food. Regarding pensions, we expect governments to push for more privatization. Providers of pension products are also likely to benefit from the aging and healthy population.

1Source: Global Market Insights, June 2019.
2Source: American pet product association (APPA), February 2020.

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