Future world: a thematic opportunity

Societies and economies are increasingly being shaped by a range of megatrends from transformative technologies to the climate crisis and demographic change. By tapping into these major themes, investors aim to capture their significant.

Thematic strategies focus on investing in assets that should benefit from long-term megatrends. This approach adds a new layer to asset allocation, transcending traditional classifications of asset classes, sectors and regions. 

These trends don t exist in isolation, though. Instead, they overlap with each other, creating a complex push/pull of factors. These include globalisation versus onshoring, rapidly growing power requirements versus the limitations of renewable energy, and long-term battery storage growth versus short-term raw material oversupply.

Meanwhile, themes exist globally, and across the market-cap spectrum. Unless an investment strategy takes into account the complex interaction of these megatrends, delves deeper into related subthemes, and focuses on the fundamentals of individual companies, it will fail to maximise returns.

Our approach to thematic investing is differentiated and dynamic. We are not simply chasing short-term growth; we are seeking companies that combine thematic purity with fundamental excellence. We use an approach that combines Aberdeen s active thematic universes and capabilities with quantitative tools. Crucially, our thematic purity assessment allows us to identify the companies we believe are likely to capture the most value from a given theme. We are able to use our global and local knowledge to capture opportunities across market cap and sector.

We have identified three broad but enduring structural growth megatrends that we believe will persist well into the latter half of the century: transformational technology, energy evolution, and health, wealth and demographics. We believe that alignment to these themes is driving the markets view of companies exposed to them. Within these megatrends, we ve identified more precise subthemes that focus on specific aspects of each trend. For example, transformational technology incorporates the subthemes of artificial intelligence and enterprise transformation.

Thematic investing often generates much debate about which theme is most appropriate for which stock. The framework we have created recognises there is not always a single correct answer. Instead, we evaluate a company s materiality and relevance up and down the value chain.

Each theme has a universe populated with stocks, which are researched and held by our active funds. We believe these stocks are likely to capture value from the subtheme.

Transformational technology

We are entering a period of sudden advances in human progress that will mark the biggest step change since the industrial revolution of the 18th century. Big data and generative artificial intelligence (AI) are driving exponential growth in computing power, application, and the processing of data. This is enabling the development of multiple new technologies. Innovation waves in technology have progressed rapidly since the first industrial revolution. Advances driven by water power, textiles and iron took more than 60 years to bear fruit. By comparison, digital networks, software and new media have transformed society in a little over two decades. Technological consumption is spreading faster today than ever before. In the rapidly evolving era of AI and big data, technologies will move from ideation to realisation in months, rather than decades.

The evolution of climate and nature solutions and the tightening regulatory landscape has accelerated the demand for green alternatives, and sustainable products and services. At the same time, the electrification of heating and transport, the onshoring of manufacturing, and the data glut are driving a step change in clean energy demand.

Improving energy efficiency will create significant opportunities across transportation (electric vehicles (EV) and alternative fuels), manufacturing and raw materials extraction (industrial machinery and processes), real estate (heating, ventilation, air conditioning, doors and glazing) and data centres (energy-efficient chips). Efficiency alone cannot address the rise in power demand from the widespread electrification of energy systems, though.

Figure 2 illustrates the forecasted growth of EV sales as a percentage of total car sales over the next 25 years. Currently, EV sales constitute approximately 20% of global car sales. Projections indicate a significant increase, with EV sales expected to reach 85% of total car sales globally by 2050. This exponential growth places it at the beginning of the S’-curve, a phase characterised by rapid adoption and market expansion. This trend represents a monumental shift in the automotive industry compared with just a few years ago. Companies involved in the EV value chain, including manufacturers, suppliers of lithium and other essential raw materials, and technology providers, are set to benefit substantially from this transition.

Breakthroughs in healthcare are contributing to longer and higher-quality human lives, and changing demographics. At the same time, rising income levels in emerging economies and generational shifts in behaviour are unlocking new markets and opportunities.

Demographic change influences economies and societies through a myriad of channels. Population growth in young countries can drive demand for new infrastructure and create an expanding environmental footprint. In contrast, shifting population composition can put strain on the sustainability of social welfare models and public debt when countries reach old age’.

Figure 3 shows that the percentage of people aged 65 and over is the primary age group that will increase over the next 75 years, versus all the other age groups.