Spotify, Netflix, Nvidia, dietary supplements – what do they have in common? They may represent megatrends that span through business and interest rate cycles, inflationary trends, offering the possibility of sustained growth in today’s uncertain world. Péter Richter, portfolio manager of the VIG SocialTrend ESG and InnovationTrend ESG equity funds, focuses on two key areas and shows who could be the winners of these processes. Are these investments in your portfolio?

Thematic investments that follow structural changes unfolding in the world are becoming increasingly popular in the Western world. Every change comes with risks but also significant opportunities for those industries that are on the right side of these changes. Who could be the winners and the losers?

Megatrends are powerful forces that have been shaping our lives for centuries. They transform the global economy, business, and society. However, they are such diverse processes affecting various areas of life that they cannot be captured with a single investment. Therefore, we strive to identify investment themes that are both well-focused and broad enough to ensure diversification.

Which seem to be the most promising areas?

One of the main directions is related to social changes, which we targeted with the SocialTrend fund. Social changes are processes that take longer to mature, and the industries serving them are relatively independent of short-term economic cycles. There are very exciting demographic processes underway that determine the future of entire industries: the world’s population is growing by 200,000 people daily (currently at 8.1 billion, this number is expected by the UN to rise to 9.8 billion by 2050), necessitating a stronger and more efficiently operating agriculture and food industry, hence we are active investors in these sectors. Society is aging (currently, 10% of the population is aged 65+, which could increase to 15% in the coming decades), which not only boost the importance of healthcare innovation but also transforms the structure of consumption. An important focus area is the growing health consciousness: by 2035, half of the world’s population could be overweight, hence there could be a steadily growing potential in weight loss products and their manufacturers.

Economists often cite the famous saying by 19th-century French philosopher Auguste Comte: “Demography is destiny.” We are talking about long-term processes here: when will these sectors, and their corresponding stock prices, show visible results?

We don’t need to think in terms of decades: in my opinion, visible results can be achieved within 5 years. These are more predictable, less volatile—though not risk-free—investments. The fund is fully invested in stocks, and among the approximately 90 individual stocks that make up half of it, we have selected companies such as Danish Novo Nordisk, which manufactures weight loss products, the American Eli Lilly, as well as Amazon, the e-commerce giant symbolizing changing shopping habits, and stocks of new favorites among younger generations like Spotify and Booking.com. The insurance sector also has a significant weight, for example: the increasingly unsustainable state pension systems could herald a golden age for private financial service providers.

Technological development, which is the other targeted area, appears to be progressing at a faster pace.

While the lower volatility of SocialTrend makes it a good risk management tool, the riskier InnovationTrend may have a higher yield potential in a bull market, and it’s possible to switch between the two funds according to the prevailing stock market cycle. The InnovationTrend portfolio also contains exciting stories, somewhat reminiscent of the Nasdaq American technology exchange: it is dominated by the technology sector and artificial intelligence, and includes ‘trendy’ exposures such as Tesla, Meta, Netflix, and Google. These stocks and companies may have a higher growth potential (although their prices fluctuate more), with their share prices having risen by more than 40% over the past year. Since these brands are well-known and used by younger generations, the investment fund is expected to be popular among them. But it is also suitable for long-term, institutional investors: their investment horizon aligns well with the time it takes for megatrends to bear fruit.