As the well-known phrase goes, the only constant in life is change. Often, those changes can have unforeseen consequences. Case in point: Since the start of the pandemic, the economic impacts have been highly uneven as some industries have suffered as others have flourished. As we move forward, these structural changes will continue to play out and have a profound impact on our daily lives.
It is critical that financial advisors recognize that even the smallest of changes can become permanent and may signify a valuable investment opportunity for their clients. With the help of financial advisors, forward-thinking investors can get ahead of the curve by taking advantage of long-term investment themes before the market realizes their full potential. This strategy—which we call thematic investing—will be crucial in helping investors unlock exponential growth opportunities.
Thematic investing is about identifying transformative forward-looking trends and empowering investors to access them through efficient vehicles. To help clients capitalize on this untapped opportunity, we have identified three areas experiencing significant permanent changes across industry, health care and consumption. The moment is now to embrace these themes before the market recognizes their full potential.
1. Industry: Reimaging The Limits Of Physical Technology
While virtual technology rallied over the past two years, physical technology has another moment to shine as we enter a period of modern industrial renaissance. The pandemic thrust global supply chain and production issues into the spotlight, prompting businesses and investors to recognize that innovation and solutions critically rely on physical technologies.
With permanent changes underway regarding how goods are produced and transported, we can expect to see a rise in automation, infrastructure and electric vehicles. Robot sales, for example, had their strongest year ever in North America just in 2021, up 28% from 2020. This is a trend likely to continue as supply chain disruption and inflation, acceleration in e-commerce, make robotics and automation more necessary than ever.
And as robotics help produce more goods, industrial technology will also be needed to upgrade outdated and inefficient transport systems. Autonomous and electric vehicles will also play a part in shaping the future of goods transport as they reduce trucking costs, capacity constraints and energy use. As the world reopens, real-world, “tangible” technology is well-positioned for growth – a trend advisors should consider for clients’ long-term investment portfolios.
2. Health Care: Paving The Way For Medical Breakthroughs
We know the effort to develop Covid-19 vaccines was unprecedented in both speed and accuracy. In January 2020, researchers published the genome sequence of the virus just 12 days after the announcement of the first virus cases, and vaccine development—from research to authorization—was 10 times faster than that of other historical vaccines.
Recognizing mRNA’s potential, researchers are already applying lessons learned to develop a robust pipeline of mRNA vaccines to treat other illnesses such as HIV and influenza. Solutions for genetic and neurological diseases such as cancer and Alzheimer’s are also underway, as sequencing systems utilized during the pandemic and faster drug approvals set a new standard for precision medicine treatments, such as gene silencing.
The progress made in genomics, immunology and precision medicine technologies underscore how the future of health care has been transformed. Financial advisors can help their clients harness this growth by owning a diversified set of companies that are spearheading these specific areas of medical breakthroughs.
3. Consumption: Viewing The Market From A Millennial Lens
Millennials have entered peak spending years and have taken their place as a dominant customer group. As millennials cement themselves as main drivers of global consumption, the markets are already seeing the impact from this generational group’s unique needs, spending habits and preferences.
Millennials’ early adoption of decentralized finance is one specific area of impact. This age cohort recognizes the benefits of decentralized technology like blockchain, as it empowers consumers with independence, allowing them to regain control of their personal data, and offers financial inclusion for the unbanked. While there has been increased interest in cryptocurrencies since 2020, the market has yet to realize the broader opportunities blockchain can provide in transforming payments, contracts and consumption, which offer a compelling long-term investment opportunity for advisors to capitalize on for their clients.
In addition to the future of money, millennials are impacting the future of food as they incorporate sustainability into every purchasing decision they make. When grocery shopping, they are demanding more eco-conscious options such as plant-based and alternative protein. With over half of shoppers considering sustainability while buying groceries, we can expect to see a jump in new technologies like precision agriculture and agricultural robots that can help us make plant-based food production not only more efficient but also cheaper. And yet again, the market has yet to realize purchasing power from plant-based and alternative proteins, a trend that advisors should keep top of mind for their clients.
Helping Clients Own The Future Through Thematic ETFs
These powerful new trends in the future of industry, health care and consumption are here to stay and have already shifted the way we live and work. Undoubtedly, these themes have also opened the door to new, cutting-edge investment opportunities that fly under the radar. To harness this next wave of innovation, financial advisors should look to thematic ETFs that help capture the entire value chain. For example, the future of transportation cuts across no less than six sectors of the global economy—from automakers to self-driving software and sensors to EV batteries and charging systems. By owning a targeted basket of securities that are purposefully poised to benefit from the emergence of a theme—regardless of sector or geography—advisors can feel confident in knowing they have captured a theme’s entire value chain for their clients.
Financial advisors play a crucial role in helping clients get ahead of the “next big thing,” and what better way is there to outperform than proactively identifying the up-and-coming trends? Regardless of what trends comes our way, and how fast they unfold, thematic ETFs serve as a tool for advisors to help clients own the future through long-term investments and be at the forefront of cutting-edge innovation.
Armando Senra is head of Americas ETF and index business at BlackRock.