Everyone loves a good story. While most asset managers have historically centred their investments around specific asset classes or geographic regions, more investors today are looking to invest in the areas of the economy that are of personal interest to them. Thematic strategies that reflect a compelling narrative may help meet this demand and offer a good opportunity for active asset managers to show what they could deliver.
Over the past decades, the world economy has seen structural transformations sparked by technological innovation, urbanisation, resource scarcity, and changes in the demographic and social landscapes. Identifying these macro-level themes allows investors to capitalise on future trends and capture the best investment opportunities over a long-term horizon.
Investing
Themes are well-known, starting as topics of conversation among budget decision makers within companies and will later become visible in most people’s personal experience
Selection of valid themes with good timing allows for higher alpha potential
Powerful and secular shifts; triggered by innovation, regulation, socioeconomic factors; identify winning themes impacted by these shifts and allow investors to participate in them, no country or sector boundaries
Urbanisation, Technological Innovation, Resource Scarcity, and Demographic & Social Change
To find out where the markets are headed, it’s important to understand the dominant themes at work today.
1. From urbanisation to intelligent cities
Driven by the trends of urbanisation, economic growth, technology and government policies, more people surge into urban areas around the world. Cities, now home to more than half of the world’s population, are expected to contribute 85% of global economic growth1 over the next decade. 1 Source: UN 2018, World Bank Urban Development Oct 2018, Bank of America Merrill Lynch; 2018.
Urban and rural population projected to 2050, World2
By 2050, the UN estimates that there will be 6.7 billion urban-dwellers, making up 75% of the global population2.
2 Source: OWID based on UN World Urbanisation Prospects, 2018.
Intelligent cities emerge as the swelling urban population strains infrastructure and services. Integrating smart technology into the existing municipal infrastructure and services helps increase efficiency to help meet rising urban demand. The latest technologies and data are used to improve sustainability, promote economic development, and enhance the quality of life for people living and working in the city.
Hundreds of cities worldwide now have significant budgets that they invest into security, energy, transportation, infrastructure, and healthcare.
Number of smart city projects by region
Q2 2019
North
America
Latin
America
Europe
Middle East
and Africa
Asia
Source: Navigant Research, June 2019.
Predicted share of market value by segment
2025E
37%
Governance and Security
23%
Energy
11%
Transportation
11%
Infrastructure
10%
Healthcare
8%
Building
Source: Frost & Sullivan, 2013.
Intelligence city technologies and infrastructure requires substantial financing,
which represents an industry with potential exponential growth.
Intelligence city-related market
opportunities can reach
USD 3 trillion3 by 2025
There are now
over 500
intelligent city
projects4 globally
Intelligence city-related market
opportunities can reach
USD 3 trillion3 by 2025
With technology
spending
over USD 100
billion5
in 2019
3 Source: Persistence Market Research, BofAML Global Research; 2017.
4 Source: Guidehouse Insights; September 2020.
5 Source: IDC; February 2020.
Driven by the trends of urbanisation, economic growth, technology and government policies, more people surge into urban areas around the world. Cities, now home to more than half of the world’s population, are expected to contribute 85% of global economic growth1 over the next decade. 1 Source: UN 2018, World Bank Urban Development Oct 2018, Bank of America Merrill Lynch; 2018.
By 2050, the UN estimates that there will be 6.7 billion urban-dwellers, making up 75% of the global population2.
2 Source: OWID based on UN World Urbanisation Prospects, 2018.
Intelligent cities emerge as the swelling urban population strains infrastructure and services. Integrating smart technology into the existing municipal infrastructure and services helps increase efficiency to help meet rising urban demand. The latest technologies and data are used to improve sustainability, promote economic development, and enhance the quality of life for people living and working in the city.
Hundreds of cities worldwide now have significant budgets that they invest into security, energy, transportation, infrastructure, and healthcare.
America
America
and Africa
Source: Navigant Research, June 2019.
Source: Frost & Sullivan, 2013.
which represents an industry with potential exponential growth.
opportunities can reach
USD 3 trillion3 by 2025
over 500
intelligent city
projects4 globally
opportunities can reach
USD 3 trillion3 by 2025
spending
over USD 100
billion5
in 2019
3 Source: Persistence Market Research, BofAML Global Research; 2017.
4 Source: Guidehouse Insights; September 2020.
5 Source: IDC; February 2020.
2. Living a digital life
enabled by technological advances
Technology has redefined how human connect with each other. With a smartphone on hand, we now have everything at our fingertips. Digital technology heavily shapes our daily life and enables new applications to be accessible for billions of people in an instant. The market value of digitisation continues to grow. Businesses such as online shopping, social media and video on demand are well established, while digital finance, E-sports and E-education applications are still in their infancy.
5G and Artificial Intelligence (AI)
5G technology is expected to unleash a massive Internet of Things (IoT) ecosystem that would allow networks to billions of connected devices. 5G development and AI will benefit each other. 5G is expected to provide the infrastructure and the massive amounts of data that AI requires. Meanwhile, AI provides the ability to make sense of the complexity of our 5G networks and make them more efficient.
The 5G infrastructure market was valued at USD 3.5 billion in 2020, and it is expected to reach USD 53.8 billion by 20266.
6 Source: Mordor Intelligence, “5G Infrastructure Market - Growth, Trends, Covid-19 Impact, And Forecasts (2021 - 2026)”; 2021.
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IoT and Cybersecurity
Intelligent cities use IoT devices such as connected sensors and lights to collect data, reroute traffic, and optimise efficiency. The explosion of IoT connectivity unlocks countless opportunities for cybercrime, as IoT devices used to have very small operating systems with limited emphasis on security. New standards for cybersecurity in IoT are being rolled out to better protect intelligent cities. Meanwhile, the accelerated adoption of cloud computing also requires more sophisticated security solutions from enterprises.
7 Source: Cisco Annual Internet Report (2018-2023), White Paper; March 2020.
8 Source: Robert Herjavec, “Cybersecurity CEO: The World Will Need to Cyber Protect 100X More Cloud Data by 2021”; October 2018
IoT devices will be
3 times
as high as the
global population
by 20237
Data stored in the cloud
is expected to be
100x
greater
than it was in 20198.
7 Source: Cisco Annual Internet Report (2018-2023), White Paper; March 2020.
8 Source: Robert Herjavec, “Cybersecurity CEO: The World Will Need to Cyber Protect 100X More Cloud Data by 2021”; October 2018
eSports
Digital technology has transformed sports and gaming as eSports springs to life. eSports attracts a global audience of over 500 million and generates almost USD 2 billion a year in revenue9. As the pandemic rages on, with traditional sporting events put on hold due to social distancing, sports fans have turned their attention to a global phenomenon that’s been going on right under their noses.
9 Source: Warrington Worldwide, “The Rise of eSports”; 1 February 2021.
10 Source: Business Insider, “Esports Ecosystem Report 2021”; January 2021
eSports
Market
Video game
sales increased by
20%
during 20209
Total eSports viewership
is expected to grow at a
9%
compound annual rate in 202310
Technological innovation
i Unthinkable, 19 November 2020, it was US$667.1 million in 2016
ii Research and Markets, 21 April 2021, global market size is expected to grow from US$2,600 million in 2021 to US$40,200 million by 2026
iii Forbes, 16 October 2017
enabled by technological advances
Technology has redefined how human connect with each other. With a smartphone on hand, we now have everything at our fingertips. Digital technology heavily shapes our daily life and enables new applications to be accessible for billions of people in an instant. The market value of digitisation continues to grow. Businesses such as online shopping, social media and video on demand are well established, while digital finance, E-sports and E-education applications are still in their infancy.
5G technology is expected to unleash a massive Internet of Things (IoT) ecosystem that would allow networks to billions of connected devices. 5G development and AI will benefit each other. 5G is expected to provide the infrastructure and the massive amounts of data that AI requires. Meanwhile, AI provides the ability to make sense of the complexity of our 5G networks and make them more efficient.
The 5G infrastructure market was valued at USD 3.5 billion in 2020, and it is expected to reach USD 53.8 billion by 20266.
6 Source: Mordor Intelligence, “5G Infrastructure Market - Growth, Trends, Covid-19 Impact, And Forecasts (2021 - 2026)”; 2021.
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Intelligent cities use IoT devices such as connected sensors and lights to collect data, reroute traffic, and optimise efficiency. The explosion of IoT connectivity unlocks countless opportunities for cybercrime, as IoT devices used to have very small operating systems with limited emphasis on security. New standards for cybersecurity in IoT are being rolled out to better protect intelligent cities. Meanwhile, the accelerated adoption of cloud computing also requires more sophisticated security solutions from enterprises.
7 Source: Cisco Annual Internet Report (2018-2023), White Paper; March 2020.
8 Source: Robert Herjavec, “Cybersecurity CEO: The World Will Need to Cyber Protect 100X More Cloud Data by 2021”; October 2018
3 times
as high as the
global population
by 20237
is expected to be
100x
greater
than it was in 20198.
7 Source: Cisco Annual Internet Report (2018-2023), White Paper; March 2020.
8 Source: Robert Herjavec, “Cybersecurity CEO: The World Will Need to Cyber Protect 100X More Cloud Data by 2021”; October 2018
Digital technology has transformed sports and gaming as eSports springs to life. eSports attracts a global audience of over 500 million and generates almost USD 2 billion a year in revenue9. As the pandemic rages on, with traditional sporting events put on hold due to social distancing, sports fans have turned their attention to a global phenomenon that’s been going on right under their noses.
9 Source: Warrington Worldwide, “The Rise of eSports”; 1 February 2021.
10 Source: Business Insider, “Esports Ecosystem Report 2021”; January 2021
Market
sales increased by
20%
during 20209
is expected to grow at a
i Unthinkable, 19 November 2020, it was US$667.1 million in 2016
ii Research and Markets, 21 April 2021, global market size is expected to grow from US$2,600 million in 2021 to US$40,200 million by 2026
iii Forbes, 16 October 2017
3. Renewable power as a solution
to the energy crisis
The transition to sustainable energy is decisive in combating climate change. Companies that provide clean energy, efficient energy storage, and sustainable energy consumption are the key players in the endeavour. The increased clean energy-related demand represents a massive opportunity to investors. An estimated USD 33 trillion investment will be made for the world’s transition to a sustainable energy system by 205011.
Energy storage is vital for integrating renewable energy into the world’s power grids. Wind power needs to grow its installed capacity 3x for onshore wind and 10x for offshore wind for next decade to stay within 2-degree global warming objective by 205011.
Latest trends that drive the
growth of new energy
Temperature has risen about
0.9°C
since the late 19th century12
Electric vehicle
15-20%
growth per annum13 by 2035
Transportation accounts for
23%
global greenhouse gas14
11 Source: IRENA: “Global energy transformation, a roadmap to 2050”; April 2019.
12 Source: Nasa Global Climate Change; 2020
13 Source: BNEF, New Energy Outlook 2019; June 2019.
14 Source: McKinsey, “Fueling the energy transition: opportunities for financial institutions”; May 2019.
Resource scarcity
iv BBC News, 4 March 2021
v National geographic, 7 June 2019
vi United Nations – Water Action Decade, 21 December 2016
to the energy crisis
The transition to sustainable energy is decisive in combating climate change. Companies that provide clean energy, efficient energy storage, and sustainable energy consumption are the key players in the endeavour. The increased clean energy-related demand represents a massive opportunity to investors. An estimated USD 33 trillion investment will be made for the world’s transition to a sustainable energy system by 205011.
Energy storage is vital for integrating renewable energy into the world’s power grids. Wind power needs to grow its installed capacity 3x for onshore wind and 10x for offshore wind for next decade to stay within 2-degree global warming objective by 205011.
growth of new energy
15-20%
growth per annum13 by 2035
11 Source: IRENA: “Global energy transformation, a roadmap to 2050”; April 2019.
12 Source: Nasa Global Climate Change; 2020
13 Source: BNEF, New Energy Outlook 2019; June 2019.
14 Source: McKinsey, “Fueling the energy transition: opportunities for financial institutions”; May 2019.
iv BBC News, 4 March 2021
v National geographic, 7 June 2019
vi United Nations – Water Action Decade, 21 December 2016
4. Demographic changes are reshaping
the pet care industry
With a growing middle class, pet ownership is increasing along with the level of care pets receive. In developed markets, shifts such as the ageing population and healthy living are fuelling a new wave of pet enthusiasts. Changing millennial attitudes also mean that pets are increasingly treated as part of the family and guaranteed a high level of care regardless of the cost, ensuring high crisis resistance for the sector.
Is willing to make financial tradeoffs
to pay for Pet’s Products & Services’
Source: 2017-2018 APPA National Pet Owners Survey Debut. Statista. IDEXX Laboratories Inc. Investor Day Presentation 2017. Grand View Research, March 2018. Statista, 2018; Zooplus, 2018.
The US pet industry was valued at USD 103.6 billion in 202015. With only 1% of pets in the US insured16, the pet insurance sector is ripe for expansion as there are increasing marketing efforts on the topic. The US pet insurance segment, worth slightly more than USD 1 billion in 2017, is forecast to smash the USD 2 billion barrier by 202217.
15 Source: American Pet Products Association, March 2021.
16 Source: Houlihan Lokey, “The emerging U.S. pet insurance market”; May 2015.
17 Source: Packaged Facts, “U.S. pet insurance market to double by 2022 lead by these 5 key facts”; October 2018.
Latest trends that drive the growth of the pet economy
63 million
households own dogs18 in the US
2nd largest dog population19 in China
9/10Americans19 consider their pet to be part of the family
18 Source: Statista, “Facts + Statistics: Pet Ownership and Insurance”; March 2020.
19 Source: Pet Secure, “A Guide to Worldwide Pet Ownership”; April 2021.
the pet care industry
With a growing middle class, pet ownership is increasing along with the level of care pets receive. In developed markets, shifts such as the ageing population and healthy living are fuelling a new wave of pet enthusiasts. Changing millennial attitudes also mean that pets are increasingly treated as part of the family and guaranteed a high level of care regardless of the cost, ensuring high crisis resistance for the sector.
to pay for Pet’s Products & Services’
Source: 2017-2018 APPA National Pet Owners Survey Debut. Statista. IDEXX Laboratories Inc. Investor Day Presentation 2017. Grand View Research, March 2018. Statista, 2018; Zooplus, 2018.
The US pet industry was valued at USD 103.6 billion in 202015. With only 1% of pets in the US insured16, the pet insurance sector is ripe for expansion as there are increasing marketing efforts on the topic. The US pet insurance segment, worth slightly more than USD 1 billion in 2017, is forecast to smash the USD 2 billion barrier by 202217.
15 Source: American Pet Products Association, March 2021.
16 Source: Houlihan Lokey, “The emerging U.S. pet insurance market”; May 2015.
17 Source: Packaged Facts, “U.S. pet insurance market to double by 2022 lead by these 5 key facts”; October 2018.
households own dogs18 in the US
18 Source: Statista, “Facts + Statistics: Pet Ownership and Insurance”; March 2020.
19 Source: Pet Secure, “A Guide to Worldwide Pet Ownership”; April 2021.
AllianzGI has extensive experience in thematic investments in companies expected to benefit from change, innovation and disruption.
intelligence
sciences
transition
resources
Trends
intelligence
sciences
transition
Trends
resources
Without a clear definition in the marketplace and so many products around trends available, it is important to be able to distinguish between true long-term themes and short-term trends the latter of which are typically priced in quickly as they lack the support of a secular growth theme.
A well-chosen and well-timed theme with investment discipline and fundamentals will likely perform across the cycle.
For instance, with less than 1% of the world water supply being drinking water, companies that look to improve water supply, efficiency and quality are in rising demand.
Source: Bloomberg; performance refers to period from 1 January 2001 to 9 April 2021.
AI is likely to be one of the largest drivers of innovation across different industries. From 2013 to 2021, the Stoxx AI Global artificial intelligence index USD almost doubled the growth of global equity, as it surged 379.61% compared to the MSCI ACWI Index’s 193.05% gain over the past eight years.
Clean water infrastructure
Water efficiency
security
Agriculture tech
life
Online consumer
Digital finance
Digital advertising
E-education
E-sports
cities
Recycling
Electric vehicles
Autonomous driving
Sharing economy
factory
Automation
3D printing
Internet of things
Robotics
AllianzGI builds on a vast network of research capabilities and industry expertise that has been established since 1998.
Our in-house research division, Grassroots® Research, and our global investment platform help us identify new trends. We have a proprietary global platform with analysts in the US, Europe, and Asia with expertise in specialised themes, such as health sciences, global technology, and thematic equities.
We evaluate all data resources and perform our thematic research in five dimensions: macro-economic, grassroots, equity, thematic, and sustainability research. This all-inclusive approach ensures that we identify the finest megatrends and long-term investment opportunities for our clients.
Research
Research
Research
Research
Research
Source: Allianz Global Investors, December 2020.
Grassroots® Research is a division of Allianz Global Investors that commissions investigative market research for asset-management professionals. Research data used to generate Grassroots® Research reports are received from independent, third-party contractors who supply research that, as far as permissible by applicable laws and regulations, may be paid for by commissions generated by trades executed on behalf of clients.
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