The megatrends and societal shifts driving new investment opportunities

From accelerating technological innovation and climate change to the transfer of wealth, global megatrends are together unleashing a wave of new investment opportunities across a variety of asset classes - and will likely drive investor behaviour for the decades to come. 

Megatrends have hugely significant and broad implications, shaping both society and the worldwide macroeconomic backdrop. These are typically multi-decade growth stories, for example the long-term potential of the innovation around artificial intelligence (AI). Vitally, they are providing a swathe of investment opportunities – across technology, the clean economy and much, much more.

But equally, there are more short-term movements - intergenerational wealth transfer; those looking to reinvest on the back of falling interest rates; and even those looking to invest for the first time – which have the potential to significantly impact markets and investor behaviour.

The dash from cash

As the world emerged from the pandemic, inflation - and subsequently interest rates – rapidly began to rise. Following the prolonged period of ultra-loose monetary policy, which helped drive a multi-year bull market, cash was once again king. 

However, interest rates have since eased and cash’s shine has begun to fade. But a towering amount of money remains uninvested - one estimate puts the combined total in money market funds and deposit accounts at some $22trn¹ . That’s a lot of money on the sidelines and is, in our view, unlikely to stay there indefinitely. Investors – and especially first-time investors - may well want to gingerly (re)enter the market and fixed income, given its relatively lower risk profile versus equities, is likely to benefit.

Many bond investors have been enjoying higher income returns as the average rates (coupons) being paid on bond indices have been rising since 2021 and are likely to continue to do so as lower coupon bonds issued before 2021 mature. Over the past decade, the compound income return from a typical US dollar investment-grade index has been around 4%; in Europe, it has been just over 2%. For US dollar high yield, it has been close to 6.5%² . Prevailing yield levels in developed bond markets provide the basis for robust income returns, which should remain above inflation.

The potential investment opportunities

Bond prices can be volatile. To manage this, investors may choose strategies with less price and interest rate risk – like short-duration bonds, or more ‘go-anywhere’ active vehicles such as global strategic bond portfolios, which can invest across the fixed income spectrum. We believe - given the broad increase in yields – that income levels are becoming more attractive. In addition, the additional return and the continued healthy state of corporate balance sheets underpin the attractiveness of both investment grade and high yield bonds. This is especially the case for short-duration strategies. We continue to see US high yield, a shorter duration asset class than its investment grade counterpart, potentially delivering healthy returns. 

Societal changes are coming

In the coming years and decades there will be a gargantuan wealth shift, which could have a profound impact on financial markets. The generational wealth transfer will be a major driver of future asset allocation. It is estimated that by 2030, some $18.3trn will be transferred globally to younger generations. The source of the switch will chiefly come from the baby boomer generation (those born between 1946 and 1964) with projected assets of some $84trn, with circa $72trn going to their heirs and $12trn to charities³ . Elsewhere, research shows that some 179 million people are set to retire over the next 10 years in OECD countries⁴ .

The potential investment opportunities

A new, younger generation of more tech-savvy investors are likely to opt for digital do-it-yourself investing options, and may have a preference for more understandable, simple and more readily accessible products. These could include easily tradeable exchange-traded funds (ETFs) or equally the one-stop shop appeal of ready-made, well diversified multi-asset funds could prove attractive.

For retirees, many will want to secure their retirement savings and will opt for an annuity-type product to generate a steady income stream. Many others will decumulate that wealth and stay invested in products that can help them maintain their standard of living. Many will choose a combination of the two routes. But for those looking to stay invested, here high-income producing assets - bonds, dividend-paying equities and broader multi-asset portfolios will likely attract attention.  

Technological innovation

The technology sector, and more specifically AI has dominated the headlines over recent years. Given it’s only in its fledgling years, it has already made a significant contribution to the way we live and work. And we have witnessed mega-cap tech companies deliver superior earnings growth as more applications are developed.

AI will potentially prove game-changing for the wider economy, given its potential to improve productivity. But other sectors including healthcare and the fight against global warming can and will benefit. The possibilities appear endless.

There has been, and will be, volatility. The technology bull market of recent years, driven primarily by the so-called Magnificent Seven stocks — Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla – was never going to rise in a straight line. But significant growth is expected on the back of AI, and it is anticipated that it could add trillions to the global economy in the coming years⁵ .

The potential investment opportunities

Technology shares have already enjoyed substantial gains, and it would be unwise to expect such performance to continue uninterrupted. But arguably we are still at the thin end of the wedge in terms of tech innovation. More progress and breakthroughs are yet to come with potential upside coming from thematic sectors like automation, robotics and AI. We see significant potential in companies that leverage digital technologies and innovative business models to deliver compelling value propositions to their customers, disrupt traditional industries and capture market share. This encompasses businesses that are at the forefront of innovation in areas such as e-commerce, cloud computing, cybersecurity and other crucial aspects of the digital economy.

The future will be sustainable

Donald Trump’s return to the White House has raised serious concerns over the path to decarbonisation given his anti-green agenda. Equally environmental, social and governance (ESG) investing has fallen out of favour in some territories but despite this backdrop recent data starkly illustrates a rapidly expanding sustainable investing industry. 

In 2024, investment in the low-carbon energy transition globally rose grew 11% to hit a record $2.1trn in 2024. The growth was driven by electrified transport, renewable energy, and power grids, which all reached new highs last year, alongside energy storage investment, according to BloombergNEF⁶ .

The need to support and finance the transition to a more sustainable future is more important than ever. And the momentum is there. Renewable energy costs are falling – for solar panels, as well as for onshore and offshore wind. Technology is continuing to tackle the challenge of cutting carbon emissions in areas such as agriculture, steel making and chemicals.

The potential investment opportunities

Fundamentally, technologies spearheading the advancement of decarbonisation and reducing biodiversity loss are continuously being created and developed, which in turn is providing investors with the scope for exposure to exciting new businesses.

Sustainably focused equity strategies, as well as green bonds - the proceeds of which are earmarked for projects which support a low-carbon economy - will be the main beneficiaries in the battle against climate change. Forecasts of significant increases in electricity consumption – driven by the technology sector and China’s demand for power - will promote further integration of solar and wind energy assets into power networks. Elsewhere strategies tapping into the so-called ‘clean economy’ which includes industries such as low carbon transport, natural resource preservation, food and agricultural technologies as well as smart energy are likely to benefit. 

For better or for worse, the world remains in flux. There is no shortage of challenges to overcome, especially in the geopolitical sphere. But amid all the obstacles, profound changes are taking place, across society, technology and the path to net zero. The strides being made should have a huge impact on how we live, work and invest. Global megatrends are here to stay, and as they evolve further should continue to offer investors plenty of food for thought and investment opportunities over the years and decades to come.