In an increasingly complex and interconnected global economy, traditional investment strategies centered on benchmarks and indices are being challenged by a more dynamic approach that emphasizes secular growth trends.
Analysts at UBS Global Research suggest that thematic equity investments, which eschew traditional benchmark-driven models to focus on long-term secular growth trends, offer an attractive alternative for investors who want to navigate the uncertainties of the modern world.
Understanding secular growth trends
Secular growth trends are long-term and transformative changes in the global economy and society. These trends, often called megatrends, include technological advances, demographic changes, and changes in environmental sustainability.
Unlike cyclical trends that fluctuate with economic cycles, secular trends are continuous and driven by fundamental changes in society.
These include artificial intelligence (AI) and robotics, innovative healthcare, climate solutions, and the ongoing evolution of energy infrastructure.
The power of megatrends in a complex world
According to UBS Global Research, focusing on secular growth trends can be beneficial in today’s complex and rapidly changing world. The COVID-19 pandemic, geopolitical tensions, and a changing global order have all highlighted the limits of globalization and exposed vulnerabilities in supply chains and national security.
As countries increasingly prioritize their national interests and seek to strengthen their economic resilience, megatrends such as AI, renewable energy, and healthcare innovation may drive future growth and investment opportunities.
For example, the development of AI and robotics is rapidly transforming industries beyond manufacturing, including agriculture, logistics, and healthcare. These technologies are becoming more affordable, easier to use, and increasingly integrated across sectors, becoming critical drivers of future economic growth.
In addition, the push for climate solutions, driven by the urgent need to address climate change, is reshaping industries and creating new investment opportunities in renewable energy, energy efficient technologies, and sustainable infrastructure.
Secular growth is a hedge against uncertainty
Investing in secular growth trends offers a way to hedge against the uncertainty of economic cycles and the unpredictable impact of short-term events. While economic cycles, political changes, and market volatility can disrupt traditional investment strategies, the long-term nature of secular growth trends provides a stable foundation for portfolio construction.
By focusing on industries and sectors that stand to benefit from this ongoing trend, investors can position themselves for continued growth.
UBS analysts noted that while the short-term outlook for some sectors may be challenging due to factors such as geopolitical conflicts or rising interest rates, the strength of the secular trend remains intact.
For example, despite a temporary setback in clean energy investment due to geopolitical events, the long-term imperative to transition to a low-carbon economy continues to drive innovation and create new opportunities.
The need for selective investment
However, UBS Global Research warns that successful thematic investment requires a deep understanding of the industry and related technologies.
As legacy incumbents struggle to adapt to these disruptive changes, newcomers and innovators will emerge as tomorrow’s winners. Investors must be very selective, identifying the best companies to buck the trend while avoiding those that can be left behind.
The key to unlocking the potential of secular growth trends is to recognize the fundamental changes occurring in the global economy and align your investment strategies.