Why megatrend ETFs offer long-term growth potential

by Chris Dieterich, Blackrock

A Q&A with the head of iShares in the U.S., Canada and Latin America on how investors can tap into long-term megatrend opportunities.

A game plan for investing in the future of innovation: megatrends.

Megatrends are long-term global trends in technology, society, the environment, and demographics with high potential to change how we live and work. iShares megatrend exchange traded funds (ETFs) are engineered to help provide forward-thinking investors with access to long-term growth potential. 

What follows is a chat about megatrend ETFs with Armando Senra, head of iShares for the U.S., Canada and Latin America.

Chris Dieterich: Let’s start with a big, open-ended question: What are megatrend ETFs and why should people consider investing in them?

Armando Senra: All of us experience megatrends every day—at home, while commuting, at work, and in the news. the “next big things,” and their potential to shape the future appears to be so obvious that anyone can see it. I’m talking about technological breakthroughs that can—for instance—help reshape the future of transportation. BlackRock sees five megatrends in action today that underpin the major changes we all experience.

What megatrend ETFs do is bundle these long-term growth opportunities, which aren’t easily captured with a few individual stocks or conventional index funds. And, since anyone can own ETFs, there’s no need to have privileged access to private markets like venture capital or private equity.

Chris: There are a lot of ETFs already. What separates iShares megatrends from other products?

Armando: Megatrends aren’t fads. There are a lot of cool things happening in the world, but we don’t think each of them can be turned into an ETF and still deliver the kind of quality that investors have come to expect from iShares. We only launch ETFs once a theme’s entire value chain is truly investable.

Take the iShares Robotics and Artificial Intelligence ETF Multisector (IRBO), which fits within our technological breakthrough megatrend. Its index includes not only tech stocks but consumer, industrial and even health care stocks.[1] Without this multi-sector approach, investors might not get access to developments in surgical robotics, for example. And our approach is global, aiming to capture a facet of the megatrend in a robust, comprehensive way.

So a lot goes into delivering quality for investors—ideas that are well thought out, quality index providers that drill deep into how companies are exposed to specific themes, competitive management fees, among many other factors.

Chris: How should investors evaluate the performance of megatrend ETFs?

Armando: We believe megatrends are structural investment trends powerful enough to play out over decades, that they’ll endure through the market cycle, and election, or central bank policy shifts. We think most investors ought to think about megatrend ETFs as long-term positions, as in, multiple years. That’s how we think about megatrends, and that’s how our ETFs are designed.

Chris: Where do megatrend ETFs belong in portfolios?

Armando: All investors have different objectives but lots of portfolios are built around “core,” foundational holdings of stocks or bonds, and “satellite” holdings with specific goals, such as creating “alpha,” or benchmark-beating returns.

Megatrend ETFs may be appropriate as satellite holdings that have the potential for long-term growth. Of course, they’ll have periods of ups and downs, but should be evaluated less on the day-to-day travails of the market and more on an investor’s long-term conviction.

Listen to the megatrends episode of The Bid podcast.

Chris: What else should investors know about iShares megatrend ETFs?

Armando: I think megatrends have emotional connectivity. What I mean is that they’re intuitive. And recognizing what you’re investing in, really knowing it and believing in it, can help keep investors stay in the market over the long-term. Helping instill a long-term mindset is useful when it comes to pursuing financial goals.

Chris: Thanks, Armando.

Related iShares Funds

• iShares Self-Driving EV and Tech ETF (IDRV)
• iShares Exponential Technology ETF (XT)
• iShares Genomics Immunology and Healthcare ETF (IDNA)
• iShares Global Clean Energy ETF (ICLN)
• iShares Robotics and Artificial Intelligence Multisector ETF (IRBO)

Chris Dieterich is a strategist in BlackRock’s ETF and Index Investments Group and a regular contributor to The Blog.

[1] BlackRock (as of Aug. 26, 2019).

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This post was first published at the official blog of Blackrock.