Thematic Investing: Megatrends

Interpretation

The charts above show the relative strength of the MSCI Thematic Indices. A rising ratio in these charts signals that the index is outperforming the broader market, while a declining ratio indicates underperformance. These indices, developed by MSCI (Morgan Stanley Capital International), are designed to track companies influenced by significant megatrends, which are long-term structural shifts with the potential to reshape entire industries and transform how we live, work, and interact. Focused on four critical areas: Environment & Resources, Transformative Technologies, Health & Healthcare, and Society & Lifestyle, these indices capture the dynamic forces driving change in global economies. Thematic investing promises to capitalize on these powerful trends, offering a forward-looking approach to investment that aligns with the forces shaping our future.

Data Sources

• MSCI: ACWI IMI
• MSCI: WORLD IMI
• Transformative Technologies:
• MSCI: ACWI IMI ROBOTICS
• MSCI: ACWI IMI CYBERSECURITY
• MSCI: ACWI IMI DIGITAL ECONOMY
• MSCI: ACWI IMI DISRUPTIVE TECHNOLOGY
• MSCI: ACWI IMI FUTURE MOBILITY
• MSCI: ACWI IMI NEXT GENERATION INTERNET INNOVATION
• MSCI: ACWI IMI AUTONOM TECH & INDUSTRIAL INNO
• MSCI: ACWI IMI FINTECH INNOVATION
• MSCI: MSCI World IMI Space Exploration 30 Index
• MSCI: MSCI ACWI IMI Smart Security & Defense Index
• MSCI: MSCI World IMI Blockchain Economy 30 Index
• Environment & Resources:
• MSCI: MSCI World IMI Clean Energy Infrastructure 30 Index
• MSCI: ACWI IMI EFFICIENT ENERGY
• MSCI: MSCI ACWI IMI Sustainable Water Transition Extended Capped Index
• MSCI: MSCI ACWI IMI Hydrogen and Future Fuels Index
• Health & Healthcare:
• MSCI: ACWI IMI GENOMIC INNOVATION
• MSCI: MSCI ACWI IMI Digital Health Index
• MSCI: ACWI IMI VIROLOGY
• MSCI: MSCI ACWI IMI Immuno-oncology Index
• MSCI: MSCI ACWI IMI Biotech Advance Index
• Society & Lifestyle:
• MSCI: ACWI IMI SMART CITIES
• MSCI: ACWI IMI AGEING SOCIETY OPPORTUNITIES
• MSCI: ACWI IMI MILLENNIALS
• MSCI: ACWI IMI FUTURE EDUCATION
• MSCI: MSCI ACWI IMI Food Revolution Index

Further Information

• MSCI: Thematic Investing

Interpretation

The chart above offers a different perspective on the same data from the ratios above.

• The MSCI ACWI IMI captures large, mid and small cap representation across 23 Developed Markets (DM) and 24 Emerging Markets (EM) countries. With 8,831 constituents, the index is comprehensive, covering approximately 99% of the global equity investment opportunity set.
• The MSCI WORLD IMI captures large, mid and small cap representation across 23 Developed Markets countries. With 5,472 constituents, the index is comprehensive, covering approximately 99% of the free float-adjusted market capitalization in each country.
• Transformative Technologies:
• The MSCI ACWI IMI ROBOTICS represents companies associated with the development of new products and services focused on artificial intelligence, robots, and automation.
• The MSCI ACWI IMI CYBERSECURITY represents companies focused on developing cybersecurity solutions, protecting digital assets, and ensuring information system security.
• The MSCI ACWI IMI DIGITAL ECONOMY represents companies driving digital economy growth, including e-commerce, digital payments, online platforms, and related technologies.
• The MSCI ACWI IMI DISRUPTIVE TECHNOLOGY represents companies developing or utilizing disruptive technologies with the potential to transform industries and business models.
• The MSCI ACWI IMI FUTURE MOBILITY represents companies developing new products and services focused on energy storage technologies, autonomous vehicles, shared mobility, and new transportation methods.
• The MSCI ACWI IMI NEXT GENERATION INTERNET INNOVATION represents companies involved in developing next-generation internet technologies, including faster, more secure, and more efficient online communication systems.
• The MSCI ACWI IMI AUTONOM TECH & INDUSTRIAL INNO represents companies driving innovation in autonomous technologies and industrial automation, including self-driving vehicles, drones, and advanced manufacturing processes.
• The MSCI ACWI IMI FINTECH INNOVATION represents companies at the forefront of financial technology innovation, including digital payments, blockchain, and other fintech-related developments.
• The MSCI World IMI Space Exploration 30 Index represents companies involved in space exploration and related industries, including satellite technology, space travel, and other extraterrestrial activities.
• The MSCI ACWI IMI Smart Security & Defense Index represents companies developing advanced security and defense technologies, including surveillance, defense systems, and smart security solutions.
• The MSCI World IMI Blockchain Economy 30 Index represents companies leveraging blockchain technology to create new economic models and services, including decentralized finance (DeFi) and cryptocurrencies.
• Environment & Resources:
• The MSCI World IMI Clean Energy Infrastructure 30 Index represents companies involved in developing and maintaining clean energy infrastructure, including renewable energy plants, smart grids, and energy-efficient technologies.
• The MSCI ACWI IMI EFFICIENT ENERGY represents companies involved in developing energy-efficient technologies, which may include advancements in renewable energy, smart grids, and energy storage solutions.
• The MSCI ACWI IMI Sustainable Water Transition Extended Capped Index represents companies involved in sustainable management and use of water resources, including water conservation, desalination, and water purification technologies.
• The MSCI ACWI IMI Hydrogen and Future Fuels Index represents companies involved in developing hydrogen and other alternative fuels that have the potential to play a key role in the transition to a low-carbon economy.
• Health & Healthcare:
• The MSCI ACWI IMI GENOMIC INNOVATION represents companies at the forefront of genomic research and innovation, including gene editing, personalized medicine, and other advanced biotechnology developments.
• The MSCI ACWI IMI Digital Health Index represents companies driving innovation in digital health, including telemedicine, health informatics, wearable health devices, and other digital healthcare solutions.
• The MSCI ACWI IMI VIROLOGY represents companies engaged in the study and treatment of viruses, including the development of vaccines, antiviral drugs, and other virology-related healthcare advancements.
• The MSCI ACWI IMI Immuno-oncology Index represents companies pioneering immuno-oncology treatments, focusing on using the body's immune system to fight cancer.
• The MSCI ACWI IMI Biotech Advance Index represents companies at the cutting edge of biotechnology, including the development of new therapies, diagnostics, and other biotech innovations.
• Society & Lifestyle:
• The MSCI ACWI IMI SMART CITIES represents companies involved in developing and implementing smart city technologies, including urban planning, sustainable infrastructure, and intelligent transportation systems.
• The MSCI ACWI IMI AGEING SOCIETY OPPORTUNITIES represents companies capitalizing on opportunities presented by an aging global population, including healthcare, retirement planning, and age-friendly products and services.
• The MSCI ACWI IMI MILLENNIALS represents companies catering to the millennial generation, focusing on trends such as digital consumption, social media, and lifestyle preferences of younger consumers.
• The MSCI ACWI IMI FUTURE EDUCATION represents companies driving innovation in education, including online learning, educational technology, and new models of education delivery.
• The MSCI ACWI IMI Food Revolution Index represents companies leading the transformation of the food industry, including sustainable agriculture, plant-based foods, and innovations in food production and distribution.

Further Information

• Longermtrends: Developed Markets
• Longermtrends: Emerging Markets
• Longermtrends: Emerging vs. Developed Markets

Interpretation

The chart above shows a heat map depicting the correlation coefficients among various MSCI Thematic Investing Indices. Each thematic index is represented on both the x and y axes, with the intersections showing the strength and direction of their correlation. A correlation coefficient of +1 indicates a perfect positive correlation, meaning two indices moved in the same direction during the analyzed period. Conversely, a coefficient of -1 signifies that the indices moved in opposite directions. The colors on the chart range from deep blue, representing a negative correlation, to bright red, indicating a strong positive correlation.
This chart is particularly useful for investors to understand how different megatrends correlate with each other over a specified time frame.
The correlation coefficient is important for diversification, as it allows investors to assess the potential benefits of including different assets in their portfolios. Diversification involves spreading investments across various assets to reduce risk. In his book Principles, Ray Dalio called diversification the “Holy Grail of Investing”. He realized that with fifteen to twenty uncorrelated return streams, he could dramatically reduce the risks without reducing the expected returns.

Interpretation

The minimum spanning tree (MST) simplifies the data from the correlation matrix above by retaining only the strongest correlations between the thematic indices. If two indices are connected, it means that they are positively correlated and that they tend to move in tandem. By analyzing the structure of the MST, one can identify clusters of assets that move together. This visual tool is especially beneficial when considering portfolio diversification. In fact, Marti, Gautier, et al. (2017) found that the optimal Markowitz portfolio is found at the outskirts of the tree and that the tree shrinks during a stock crisis.