Megatrends: new sustainable investment opportunities

The main international management agencies recommend trends that rely on sustainable business models
Go to Perspectives 2020
In an environment of concern over society's well-being and care of the planet and non-stop technological progress, these new trends are now the engines of global growth. BBVA Private Banking is working with leading management firms to incorporate these sustainable investment models into its proposal.

Investment megatrends

From the main international managers.

  • At BBVA Private Banking, we are committed to the most interesting investment trends to achieve different perspectives, greater diversification and different performance from other, more traditional management techniques.
  • In what areas do we see more value in the medium and long term? In sustainable investment, the technological revolution in finance and new technologies applied to security, sustainable consumption and longevity, as clear areas for creating value in portfolios.

Sustainable consumption by Morgan Stanley

Based on United Nations data, by 2050 the world's population could reach 9.6 billion people. This will make it so that in order to maintain our standard of living, we will need the current equivalent of 3 planets. As a result, everyone will have to produce and consume resources more sustainably (SDG #12), with this goal of sustainable consumption and production understood as doing more with less. It's about creating benefits from economic activities by reducing the use of resources, degradation and pollution, while achieving a better quality of life.

Thus, from the point of view of sustainable investment, companies that are able to adapt to these consumer criteria will be the winners and leaders in their industry, since consumers are attaching more and more importance to these sustainable criteria when choosing a brand. They must also be consistent with the relevant governmental criteria and take into account the possible sanctions that regulators want to impose on production chains that do not comply with them, which would affect the bottom line and the reputation of the companies.

How do we make the most of this opportunity?

The best way to implement these sustainable principles is by engaging with management on crucial, everyday issues. The best positioned for this are active managers, who are the experts tasked with identifying environmental, social or governance risks, as well as other types of opportunities. This involvement by managers also allows:

  • Get a better picture of the company's ESG profile (environmental, social and corporate governance).
  • Contact the management team and the board if there is a risk to the sustainability of the returns. Thus, if a company doesn't comply with corporate governance, it won't comply with the other two pillars of ESG either:  the environmental and the social.

Health and longevity by AXA

We think that in the future, the companies that could grow the most may be those that take longevity into account as a key factor. In fact, some believe that this will constitute one of the greatest transformations of this century, with the life expectancy of children born in rich countries today being over 100 years. This entails vast and profound implications for people that will force them to change the current three-stage life cycle for one with multiple stages. The latter will include some intermediate stages and a final, retirement stage with a higher expenditure on health care, which can double from the age of 65 and can quadruple above 85.

How do we make the most of this opportunity?

As an investment manager, we recommend that the focus be placed on those companies that are going to experience fastest growth in the field of longevity, which we find around 4 major areas:

  • Welfare, considering how the turnover of the industry that includes gyms and health clubs totaled 87.2 billion euros in 2017.
  • Expenses by the elderly, following estimates that predict a global expenditure in 2020 of 15 trillion (versus the 8 trillion in 2010).
  • Care for the elderly, given that the demand for nursing homes will triple by 2030 for the whole range of services for the elderly: from active-lifestyle nursing homes to hospitals. 

Treatments, with great advances in medical and pharmaceutical research on diseases that increasingly affect the elderly population.

A technological revolution in finance by Robeco

Today, traditional banking is facing a series of new trends that are transforming the industry as we know it, and that are, in turn, offering interesting investment opportunities.

One of the most influential factors is digitization, the driving force behind the growth of the financial industry, with Fintech (or Financial Technology, a financial industry that applies new technologies to financial or investment activities) as a major player in the short term. This will require financial institutions to make significant investments in technology in the next 3-5 years in order to evolve toward, for example, more online payment methods (or via app), to blockchain or to the use of robo advisors.

How do we make the most of this opportunity?

The speed and disruption of technological, demographic and regulatory changes offer clear investment opportunities that can be capitalized on. We believe that:

  • Online payments will be the general rule and "cash" will be the exception.
  • The door will open to 2 million people who today are not managing their finances through the digitization of the financial sector.
  • Cooperation between the most established players (banks), which have the databases, and the new players (fintech), which own the technology.

Fintech can have a very sustainable approach, and not just because it is inclusive (bringing emerging and developed markets closer). Also because of the basic role of cybersecurity in the efficient management of business models, a key to governance in the famous ESG.

Sustainability and impact. Climate change by Allianz

Sustainable investment makes sense, both economically and socially, as was evidenced in COP25, which made clear what is happening, who the culprits are and the need to reverse the current situation, meaning we must stop climate deterioration.

This requires funding, and not just public funding, but also private. And it is within this framework that sustainable investment stands out as the smartest way to invest, from two points of view:

  • Risk management: those companies that are emissions intensive will face great risks, and may become obsolete or be subject to various fines. They may even end up with "stranded assets". This means that in order to have a good investment portfolio, we must know these risks and act accordingly.
  • Opportunities: the innovation that is being applied in order to achieve a more sustainable economic model is very interesting, in both new and existing companies. All of them are being decisive in how they address change, meaning that in the future, they will experience sustained and structural growth, which makes them a good investment opportunity. 

Investing while seeking to have a positive impact on our economic model doesn't mean excluding anything that pollutes. Investing isn't about punishing, but about funding winning models and participating in their success.

Technology focused on cybersecurity by Pictet

The world is changing, as are society, people and even business models. Technology plays a fundamental role in all of this, with contributions ranging from process automation to the implementation of better solutions in terms of safety. And it is the latter that has the greatest growth potential, given the need for human beings to feel secure.

Supporting factors

  • Innovation, given that new technologies open the door to new security needs (cloud computing, online payments, etc.).
  • Demographic development and global urbanization, which have forced us to enhance the security of public transport, infrastructure and popular events.
  • Regulation, which supports the response to modern threats (PSD2, for example).

Cyber attacks are also very common today. The data of individuals, companies and governments is frequently breached, which entails a physical and economic-financial risk. This makes it positive to invest in these safety solutions, whose aim is to guarantee that desired protection. 

Which ones can I invest in?

  • Physical security, which ranges from electromagnetic locks to comprehensive home security or access control systems.
  • Security services: those that ensure the quality of essential everyday products (e.g. food controls and security and secure payment services).
  • Computer security: new technologies in areas such as biometrics, surveillance systems and facial recognition or, at a higher level, electronic transactions, which will contribute to the fight against crime and cyber terrorism.

The focus of the safety industry is therefore to help protect the health, privacy and well-being of people throughout the world. If the world is changing, shouldn't how we invest change as well?