Biggest investment trends of our lives

Jason Jenkins
0 Comments|April 10, 2013

Global demand for food, water and energy will increase by 35% over the next two decades

Have you heard the news? The ever-evolving world of science, scarce resources and population explosion will alter the world we live in by 2030. In 18 years there will also be a shift in the balance of global power.
 

This new landscape will be the catalyst for an unprecedented acceleration of political and economic change – so says the U.S. intelligence community. But the question is: Should we change the way we invest in the future?
 

Alternative worlds

The National Intelligence Council (NIC) released a report in December titled “Global Trends 2030: Alternative Worlds.”The study reflects the combined findings of all the U.S. intelligence agencies, plus input from noted scholars, institutions, politicians and other countries.
 

The report presents four possible scenarios for “rapid and vast geopolitical changes” and four “megatrends” that will steer these scenarios.
 

Here are those megatrends:
 

  • The end of a single-polar world characterized by U.S. global dominance.
  • The rising power of individuals versus state power.
  • The rise of the middle class that will challenge governments.
  • A growing scarcity of water, food and energy.

If you look at our history, such things as technological advances, wars and exploration have shaped our civilization’s development and advancement. But according to NIC Counselor Mathew Burrows – who was the main author of the report – the next 25 years will see us shaped by the following: “the growth of the middle class, wider access to new technologies, shifting economic power, aging populations, urbanization, growing demand for food and water and U.S. energy independence.”
 

Major findings?
 

An older population

In a lot of developed countries, the combination of people living longer and the decline in fertility rates has resulted in populations in which a growing number of citizens are over the age of 65.
 

There is an expectation that these “older” countries will see slower GDP growth rate. Basically, developed countries will find themselves dealing more with the burden of increased funding for programs similar to Social Security and/or pensions.
 

A rapidly growing global middle class

Burrows writes about a new demographic phenomenon called the “youth bulge.” The 2030 report deals a lot with what happens when this explosion of youth – as The Jeffersons‘ theme song would say – starts moving on up.
 

Currently the middle class consists of about one billion people across the globe. By 2030, that number could double or even triple. The most rapid growth will occur in India, China and other Asian countries.
 

An expansion of the middle class of this scale translates into a never-before-seen world of extraordinary consumption. This in turn will put a lot of pressure on our natural resources. Burrows warns the global demand for food, water and energy will increase by 35% over the next two decades.
 

The rise of urban areas… again

It seems this game changer has happened many times over our recorded history. However, the phenomenon has never happened so quickly and with as much consequence. There will be internal migrations from rural areas to the cities – especially with this rising middle class. So much so that the report says by 2030, 60% of the Earth’s inhabitants will live in urban areas.
 

If we add mass urbanization to population growth, we put a real strain on real estate (the availability of housing and construction materials for the growing populace) and energy.
 

The East and other players making their moves

The report also forecasts that there will be a power shift from the United States and Europe to Asia.
 

The East’s gross domestic product, military spending and investment dollars in technology will surpass the West’s. Even before 2030, it is projected China will surpass the U.S. economically.
 

Also, look for more traditional regional players like Colombia, Nigeria and Turkey to become more of a force internationally.
 

How should this report affect my portfolio?

Be careful how you implement the ideas in the report. The study is based on a good foundation, but remember… things happen.
 

Mr. Burrows many times warns against “black swan” events that could debilitate the world economy, like “the collapse of the euro and the European Union, a pandemic, a Chinese economic collapse, a nuclear war or a massive cyberattack.”
 

So throwing your entire portfolio into Asia just because the report says Asia is going to make a run is not a prudent investment strategy.
 

But it seems there will be some problems that the entire world will have to address going forward – and here lies the opportunities.
 

Water

Water may be the next super commodity. The myriad of issues surrounding the notion of getting water to a growing population is not just a problem for the folks abroad. We have issues here at home.
 

One of our problems is we’ve had water infrastructure for a long time. But we haven’t done a good job of maintaining it.
 

The American Society for Civil Engineers reports there are somewhere around 700,000 to 800,000 miles of public sewer mains in the United States. On top of that maze, there are over a million miles of drinking water systems – and many of those pipes date back over a century ago.
 

It’s also been recently noted that pipes account for about 80% to 85% of all wastewater system investment requirements here in the States.
 

And, of course, the problem is becoming more critical around the globe. Let’s go back to the report. It is believed that annual global water requirements will reach 6.9 trillion cubic meters in 2030. That number is 40% above what is now considered sustainable water supplies.
 

And leaders around the globe are starting to realize something needs to be done.
 

Last year, the Saudis announced they would invest $133 billion into water and power projects. Keep in mind that water means more than just sewage and clean drinking water. Industry is ahead of the residential and agricultural sectors when it comes to water usage.
 

The problem takes on new light when you see the need for water in the shale-gas production process in dry areas like West Texas and the Middle East.
 

If you want to dabble in one of the great “global trends” of the next two decades, here are some focused water ETFs. These funds give investors exposure to drinkable water, treatment and filtration processes, and equipment and new technologies:
 

  • First Trust ISE Water Index Fund (NYSE: FIW)
  • Guggenheim S&P Global Water Index ETF (NYSE: CGW)
  • PowerShares Water Resources Portfolio (NYSE: PHO)
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