Investors who are looking to generating returns over the long term should look to capitalise on tailwinds that will be present no matter what happens.
In 2020, there were many “pandemic winners” in the stock market but, in fact, a lot of these companies were actually growing long before Covid-19 hit.
These so-called “megatrends” are also popular among professional investors, including ARK’s Cathie Wood.
While stocks such as Zoom Video Communications Inc (NASDAQ: ZM) made a name for themselves on the back of a massive spike in demand, the general view is that there has been a “pull-forward” of demand for certain services.
That means that these stocks may (or may not) generate great returns in the short term. However, over the longer term – say five to 10 years – if businesses continue to perform in a post-pandemic era then that should eventually be reflected in share prices.
With that, here are four solid megatrends that investors can think about exploring in 2021 and beyond.
1. E-commerce
It’s no surprise to anyone that one of the largest e-commerce companies in the world, Amazon.com Inc (NASDAQ: AMZN), also happens to be one of the most valuable companies in the world, too.
That’s because the whole e-commerce sector continues to grow solidly. From China to Europe to the US or Latin America, e-commerce companies are continuing to take market share from incumbent retailers.
Last year a whopping US$4.2 trillion dollars’ worth of goods were sold online yet that only made up just over 18% of the total US$22.5 trillion in overall retail sales.
Admittedly, in 2020, there was a near five percentage-point jump in e-commerce’s share of overall retail, driven by the pandemic but the truth is that that figure had been rising for years before.
As consumers get used to shopping online and having goods conveniently delivered to their doorstep, now sometimes within the same day, e-commerce will undoubtedly continue to grow over the next decade.
2. Digital payments
For long-term investors, one of the best investment megatrends in recent times has been that of digital payments. Don’t expect that growth to dissipate any time soon.
As investment guru Ray Dalio puts it: “cash is trash”. Although he may be speaking about cash in investment terms, physical cash is also seeing waning popularity.
That’s because the ease of transferring money, managing your portfolio, buying cryptos and paying for your Grab ride has all been made possible by the digital payments ecosystem.
These can include the major credit card providers as well as digital wallets and payments platforms that make processing online transactions a seamless experience.
Clearly, the market is huge and growing. Last year the global digital payments market was US$5.4 trillion and this is projected to grow at a compound annual growth rate (CAGR) of 11.2% between now and 2026 when it’s estimated to be worth US$11.3 trillion.
E-commerce and digital payments are interlinked as the massive rise in the former has also turbocharged the latter.
As people get used to transacting online and taking the “friction” out of going to a bank for whatever reason, digital payment providers will continue to benefit.
3. Telehealth
In the telemedicine space, last year Teladoc Health Inc (NYSE: TDOC) was the poster child of telehealth investing.
However, more recently, as populations have been vaccinated and people return to work, the share prices of major telehealth stocks have suffered.
Yet the larger trend looks set to remain intact. That’s because technology has been glacially slow to enforce change in the global healthcare industry.
For example, McKinsey believes that global digital-health revenues, which includes telemedicine as well as wearable devices, will shoot up from US$350 billion in 2019 to US$600 billion by 2024.
That’s no surprise given the global telehealth market itself is estimated to grow at a CAGR of 25.2% between 2020-2027 to be worth roughly US$560 billion at the end of the period.
For investors looking longer term, telehealth is likely going to be a key part of our lives in the next decade.
4. Renewable energy
Finally, we have renewable energy. It’s no secret that fossil fuels are bad for the planet – that’s been known for a while now.
However, last year saw a watershed moment in how companies (and individuals) view “dirty” industries.
Clean air as less planes were in the air and cars on the road saw a concerted effort by governments and companies worldwide to push for net-zero carbon emissions targets by 2050.
For investors, the ramifications are huge. According to Munro Partners, a global investment manager, US$50 trillion in spending is going to be needed to de-carbonise the planet over the next few decades.
Inevitably, that is going to create opportunities for winners to be found, whether it’s in clean energy, battery providers or electric vehicles.
Focusing on long-term megatrends
By definition, megatrends are long term. They play out over years and decades, not weeks or months. For those of us who have the patience to invest in key winning sectors over the long term, the upside could therefore be substantial.
Disclaimer: ProsperUs Head of Content Tim Phillips owns shares of Teladoc Health Inc.
