Fancy investing only in megatrend stocks? Discovery and Goldman Sachs just launched a fund for you

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Discovery and Goldman Sachs Asset Management have launched a global megatrends fund, tracking stocks that are set to win big from millennials spending behaviours.
Discovery and Goldman Sachs Asset Management have launched a global megatrends fund, tracking stocks that are set to win big from millennials spending behaviours.
  • Discovery and Goldman Sachs Asset Management have launched Discovery Global Megatrends Fund.
  • The fund identifies and invests in stocks that they believe will benefit from millennials' spending and investment behaviours.
  • But it's not the big US tech stocks - it's smaller companies that are still cheap to buy.

Discovery and Goldman Sachs Asset Management have launched a fund that will allow local investors to invest in megatrends.  

Called the Discovery Global Megatrends Fund, it only has stocks that will benefit from four megatrends: the rising spending power of millennials, the changing landscape in healthcare, technological advancement and environmental sustainability.

While investors can purchase stocks of companies benefiting from these trends on their own, many still buy into indices like the S&P 500. But Discovery Invest CEO and Employee Benefits Kenny Rabson said that when one isolates shares benefiting from the megatrends, the outperformance was massive in the past year.

So Discovery Invest opted to create a portfolio that's still diversified but only includes the outperformers. The company made the fund available for investment in Rands and US dollars on Monday.

It is an expansion of Discovery Invest's ambitions to bigger in offshore investments. In May last year, the company launched its first offshore product, Discovery Invest International, in partnership with BlackRock and Goldman Sachs. Rabson said since the launch, Discovery Invest saw massive growth in the sales of its offshore platform.

Why the megatrends?

While the world has seen a boom in tech stocks in the past year, creating concerns about a bubble in US tech stocks, Goldman Sachs Asset Management said the big US technology companies have no space here.

"This is a fund that is specifically identifying companies that are below a certain market cap, and as much outside of the US, as in the US," said Richard Wiseman, an executive director and portfolio manager at Goldman Sachs.

Wiseman said for Goldman Sachs, a megatrend is one that represents a long-term superior growth opportunity created by structural changes that don't depend on the economic cycles. They must affect the entire globe and benefit a wide range of companies so that investors can build differentiated portfolios.

"We're not interested in short term fads that might last two or three years," he said.

So, Wiseman believes that the fund will offer something that a standard global equity index, which tracks stocks in legacy businesses, can't.

Its focus on the "new age consumer" trend comes from Goldman Sachs's observations on the performance of its global millennial equity portfolio that the asset manager has run for over five years.

"At the moment, it's the millennial generation that has the consuming power. And it's not just about their power as consumers, it's also about the fact that they will spend that wealth differently," said Wiseman.

He said millennials' income, especially in the emerging markets in Asia, is "way bigger" than the previous two generations. But not all companies understand them as millennials are the first generation of digital natives, expect innovation, and care more about climate change and sustainability issues.

So, companies in sustainable living, health and wellness, as well as those focused on experiences, are some of those that Goldman Sachs think will benefit from how millennials spend their money.

He said other companies that endorse environmental sustainability and are starting to do something serious about climate change are also expected to cash in on millennials' expenditure. Wiseman said this is one generation that is vocal and ready to vote with its wallets to make things happen.

"We have an alliance of spending power behind the so-called green recovery. We have consumers who are increasingly spending in more sustainable ways," added Wiseman.

He said in selecting stocks to invest in, the fund takes into account the fact that it's not only obvious industries like clean energy or water sustainability that will benefit from this trend but the whole ecosystem that goes with it.

In healthcare innovation, Wiseman said the fund looks at companies that will benefit from the decreasing costs of sequencing the human genome to understand human DNA better.

Whereas it cost over US$1 million to sequence the human genome over a decade ago, Wiseman said that cost is getting closer to below US$100. So, drug companies and companies that will provide technological infrastructure to make this happen are a big focus of the fund.

"It includes the technology around robotic surgery and robotic medicine. It also includes companies that produce screening equipment and reagents and other companies in the value chain," he said.

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