Megatrends and The Future of ETFs

By June 1, 2020 August 12th, 2020 No Comments

Megatrends and The Future of ETFs

Megatrends are powerful geostrategic forces that will transform the world and bring profound changes to the way we live. The concept of megatrends is not new. Just think of how the internet has evolved and impact our lives – something that was inconceivable half a century ago.

Just what are the mega forces in action? How would these megatrends reshape the world as we know it? How will the world look like by 2030?

The 9 Megatrends Underway

Recognising the shift in priorities of societies is key to positioning portfolios for the long-term.

In 2019, the Massachusetts Institute of Technology published a list of the biggest megatrends that will impact the world by 2030.[1] Here are the nine global trends in the horizon:

Megatrends Summary
(Nearly Certain)
Global population will grow to 8.5 billion, with more than 1 billion to be over 65. Due to better healthcare services, life expectancy will also be higher.
(Nearly Certain)
Two-thirds of the world will live in cities. There will be a need for better management technologies for buildings and expansion of urban agriculture.
(Very Likely)
A radically more open world as amount of information collected on people, products and organisations grow exponentially. Tools to analyse these information will also become well-developed.
Climate Crisis
(Very Likely)
Inertia from governments to balance economics and environmental needs. Climate may feature regular, extreme temperature everywhere.
Resources Pressures
(Very Likely)
Resource constraints will force higher usage of recycled content and remanufactured products. Water will become a stressed resource.
Clean Tech
Drop in cost of clean tech will drive growth in renewable energy. Electric vehicles will become mainstream. Data-driven tech will drive efficiency for infrastructures.
Technology Shifts
Dawn of affordable AI with human levels of intelligence. Potential to create new jobs but also would disrupt or even displace entire segments of work.
Global Policy
Climate change, resources pressures, vast inequality and poverty require global governments to come up with unified responses which is high unlikely. Businesses may end up driving sustainability.
Rise of nationalism and radicalism.

In essence, this list of the megatrends represents longer term structural shifts in the way society functions and can alter the trajectory of the global economy. Their developments will bring consequential (and often irreversible) impacts for the world around us. They influence government policies to businesses and inevitably, the investment landscape.

Future of ETFs

Globally, ETFs surpassed US$6 trillion in assets under management in 2019. The tailwinds for ETFs would likely continue as the core proposition of low cost, transparent and easy-to-trade features remain. investors looking to diversify their portfolios without spending time and effort to manage their assets will continue to see ETFs as attractive investment options.

That said, the growth of ETFs will likely not be evenly distributed as investors, with differing priorities, pile on different investment themes. After a conversation with Morningstar, these are some predictions about the future of ETFs that stand out.

  • Income-focused ETFs Will Continue to Gain Popularity

The world’s population is ageing and more than 1 billion people is expected to be over 65 years old by 2030. According to United Nations: World Population Prospects 2019, the world’s population life expectancy also continues to extend from 72.6 years in 2019 to 77.1 years by 2050.

The shift in demographics will be a key fundamental driver for demand for income-focused ETFs, as more investors seek for income, for a longer period of time due to increase in longevity. In general, this also could mean that slower working age population growth would lead to slower output growth and hence, undermine expected nominal returns in the future.

In addition, the world economy is also becoming acclimated to the lower interest rate environment. Given this backdrop, the aging society will continue to drive demand for yield-oriented assets.

Some of such products are offered by Phillip Capital Management including Phillip SING Income ETF, Phillip SGX APAC Dividend Leaders REIT ETF, Phillip Singapore Real Estate Income Fund and Phillip Money Market Funds.

  • The Advent of ESG ETFs

It is an outdated view that businesses have to sacrifice some financial return when they adhere to socially responsible investing principles. A study conducted by Harvard Business School, found that performance of companies that voluntarily adopted sustainability policies in their processes in the early 1990s, significantly outperformed counterparts over the long-term.[2]

Expanding focus in ethics/environmental, social and governance (ESG) in recent years has driven investors to align opportunities with their values and beliefs. Due to the transparency of ETFs by nature, investors can monitor evidence of ESG focus and hence why an ETF is a vehicle of choice for ESG-investing.

Many factors continue to support the trend for ESG investing. For one, we are already seeing a growing push of the sustainability agenda by the Millennials and Generation Z in major economies like in the US, EU and China. The movement to address sustainability is also growing in prominence: Just last year, Greta Thunberg, a 16-year old Swedish school girl and climate activist, was named Time magazine’s Person of the Year.

Locally, investors should also be cognisant that our Singapore banks have ended new lending to coal projects.  This major development was quite widely covered by news media in 2019.

Going forward, ESG ETFs will likely incorporate more and more clean technology companies that address different environmental challenges in portfolios. This could include water treatment plants, renewable energy producers, recycled content producers or electrical modes of transport vehicles.

  • Intersection of Impact Investing and Exponential-Technology ETFs

Technology has permeated through every aspect of daily lives and innovations will still be the keys to creating viable and sustainable solutions to address society’s most urgent challenges. The Millennials and Generation Z can fully appreciate this aspect. The prospects of pairing ESG values with disruptive technology as a value propositions of ETFs will become increasingly appealing.

Exponential technologies are defined as innovations that have the potential to positively affect billions of lives. Some examples are robotics, artificial intelligence (AI), medical technologies, autonomous vehicles. Different technologies can also be “fused” to address more complex issues, for instance how radio frequency components combined with phones gave the world smartphones.

  • Alternative ETFs To Be The Next Frontier For Retail Investors

As retail investors grow more sophisticated, they will increasingly desire to dip into private equity markets. However, most retail investors do not meet regulatory requirements to buy into such markets.

Due to how ETFs have democratised investing, they are natural vehicles to gain exposure to alternative strategies. Apart from private equities, alternative ETFs can also include commodities, real estate assets, family offices etc.

  • Growing Adoption of Smart Beta ETFs

The recent coronavirus outbreak is putting Smart Beta strategies back to the spotlight. Within the landscape, multi-factor approaches that are tilted to quality or risk-control give investors stronger protection in downturns.

With markets questioning the longevity of the current bull market, we are likely to see more and more investors are embracing non-traditional ETF strategies to help them participate in in potential upside while minimising downside risks.

Just An Impressionistic Picture

No one can predict how exactly the future will turn out. The predictions mentioned in the article can – at best – only paint us an impressionistic picture of the world of the future. The key takeaway question though is, how are you positioning for it?


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This material is provided by Phillip Capital Management (S) Ltd (“PCM”) for general information only and does not constitute a recommendation, an offer to sell, or a solicitation of any offer to invest in any of the exchange-traded fund (“ETF”) or the unit trust (“Products”) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. You should read the Prospectus and the accompanying Product Highlights Sheet (“PHS”) for key features, key risks and other important information of the Products and obtain advice from a financial adviser (“FA“) before making a commitment to invest in the Products. In the event that you choose not to obtain advice from a FA, you should assess whether the Products are suitable for you before proceeding to invest. A copy of the Prospectus and PHS are available from PCM, any of its Participating Dealers (“PDs“) for the ETF, or any of its authorised distributors for the unit trust managed by PCM. An ETF is not like a typical unit trust as the units of the ETF (the “Units“) are to be listed and traded like any share on the Singapore Exchange Securities Trading Limited (“SGX-ST”). Listing on the SGX-ST does not guarantee a liquid market for the Units which may be traded at prices above or below its NAV or may be suspended or delisted. Investors may buy or sell the Units on SGX-ST when it is listed. Investors cannot create or redeem Units directly with PCM and have no rights to request PCM to redeem or purchase their Units. Creation and redemption of Units are through PDs if investors are clients of the PDs, who have no obligation to agree to create or redeem Units on behalf of any investor and may impose terms and conditions in connection with such creation or redemption orders. Please refer to the Prospectus of the ETF for more details. Investments are subject to investment risks including the possible loss of the principal amount invested, and are not obligations of, deposits in, guaranteed or insured by PCM or any of its subsidiaries, associates, affiliates or PDs. The value of the units and the income accruing to the units may fall or rise. Past performance is not necessarily indicative of the future or likely performance of the Products. There can be no assurance that investment objectives will be achieved. Any use of financial derivative instruments will be for hedging and/or for efficient portfolio management. PCM reserves the discretion to determine if currency exposure should be hedged actively, passively or not at all, in the best interest of the Products. The regular dividend distributions, out of either income and/or capital, are not guaranteed and subject to PCM’s discretion. Past payout yields and payments do not represent future payout yields and payments. Such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value (“NAV”) of the Products. Please refer to <> for more information in relation to the dividend distributions. The information provided herein may be obtained or compiled from public and/or third party sources that PCM has no reason to believe are unreliable. Any opinion or view herein is an expression of belief of the individual author or the indicated source (as applicable) only. PCM makes no representation or warranty that such information is accurate, complete, verified or should be relied upon as such. The information does not constitute, and should not be used as a substitute for tax, legal or investment advice. The information herein are not for any person in any jurisdiction or country where such distribution or availability for use would contravene any applicable law or regulation or would subject PCM to any registration or licensing requirement in such jurisdiction or country. The Products is not offered to U.S. Persons. PhillipCapital Group of Companies, including PCM, their affiliates and/or their officers, directors and/or employees may own or have positions in the Products. This advertisement has not been reviewed by the Monetary Authority of Singapore.

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