Complete Wealth Management With Dave Alison

Megatrend Investing with Jeff Spiegel | Episode 5

• Dave Alison, CFP®, EA, BPC • Season 1 • Episode 5

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The modern world is changing at the speed of innovation, transforming the way we live and work. 

We see this change, and the pull of the future, through megatrends – powerful, transformative forces that can change the trajectory of the global economy by shifting the priorities of societies, driving innovation and redefining business models.

In this episode, Dave Alison is joined by Jeff Spiegel, US Head of iShares Megatrend ETFs at BlackRock and they discuss megatrend investing.

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The information provided in this presentation is not intended to be individual investment advice or legal advice.  The information provided is for informational and training purposes only.

Investment advisory services are provided through Prosperity Capital Advisors LLC (“PCA”) an investment advisor registered with the United States Securities and Exchange Commission (SEC). For a detailed discussion of PCA and its investment advisory fees, see the firm’s Form ADV and Form CRS on file with the SEC at www.adviserinfo.sec.gov. The views expressed herein represent the opinions of PCA and are not intended to predict or depict performance of any particular investment.

All data provided, including any reference to specific securities or sectors, is provided for informational purposes and should not be construed as investment advice. It does not constitute an offer, solicitation, or recommendation to purchase any security. Consider your investment objectives, risks, charges and expenses before investing. These views are as of the date of this publication and are subject to change. Past performance is no guarantee of future performance.

Advisory services are provided through Prosperity Capital Advisors LLC (“PCA”) an investment advisor registered with the United States Securities and Exchange Commission (SEC). Views expressed herein represent the opinions of PCA and are not intended to predict or depict performance of any particular investment.

All data provided, including any reference to specific securities or sectors, is provided for informational purposes and should not be construed as investment advice. It does not constitute an offer, solicitation, or recommendation to purchase any security. Consider your investment objectives, risks, charges and expenses before investing. These views are as of the date of this publication and are subject to change. Past performance is no guarantee of future performance.

Dave Alison (00:07):

Welcome to The Complete Wealth Management Podcast. I'm your host, Dave Alison, and we have a great episode in store for you today. We're going to be talking all about megatrend investing. As we all know, the modern world is changing at the speed of innovation, transforming the way we live and work. We see this change and the pull of the future through megatrends, which are powerful, transformative forces that can change the trajectory of the global economy by shifting the priorities of society, driving innovation, and redefining entire business models.

(00:49):

Now, I'm really excited for today's episode because we are joined by Jeff Spiegel, who is the United States head of iShares Megatrend Sector Investing at BlackRock, the world's largest asset manager. We're going to be chatting with Jeff about current megatrends. What are megatrends? How do we define megatrends? How do we access megatrends through our investment portfolio and the different thematic goals of megatrend investing? So stay tuned for today's episode.

(01:24):

All right. I am excited for today's episode. As I mentioned earlier, we have Jeff Spiegel, the US head of iShares Megatrend Sector investing with us here. Jeff, welcome to the podcast.

Jeff Spiegel (01:35):

Thanks so much for having me, Dave. Pleasure to be with you.

Dave Alison (01:38):

Absolutely. I know it's been a long time in the making to have you on here. Jeff, would you mind just kind of sharing a little bit of your background and you know what this role looks like for you at iShares and at BlackRock?

Jeff Spiegel (01:50):

Absolutely. So I've been with BlackRock about 10 years in a variety of functions, mostly product oriented. I pride myself and I'm passionate about product development. In our current role or my current role, our team is focused really on three areas. So one is what products do we think the market needs? What's interesting out there to investors, and then how do we implement that in an ETF structure? Second, what's the sort of messaging around these strategies? How do we communicate the opportunities that are associated with a lot of today's most exciting themes?

(02:24):

And then last and certainly not least, we work with individual clients and how they can implement these into their portfolios. So really the full life cycle of these products, whether it be our megatrend ETFs, our sector ETFs, or international ETFs.

Dave Alison (02:39):

That's great. Well, I was excited to jump on just being a little bit of a technology geek myself. This was a topic that was super interesting to me. And it seems like a no-brainer that maybe we should have some exposure into things that we might deem to be megatrends, but I'm sure it's not as easy as that. And so just to kick things off here, would you mind sharing what do we mean by megatrend? How do you, how does your team, how does BlackRock define megatrend? What are some factors you guys are looking for to see if something actually fits into this concept of megatrend?

Jeff Spiegel (03:18):

Sure. So at the highest level, we would think of a megatrend as a long-term structural change. In particular, we've identified five of them, which I'll walk through. And the five aren't necessarily investible, but rather there are guideposts on what are the major superhighways into the future. Within them, you'll have themes. So to be a little more specific, the five megatrends that BlackRock has identified are first technological breakthroughs, probably the most self-explanatory themes under that range from artificial intelligence and robotics to cybersecurity to the cloud.

(03:52):

Demographics, which maybe is a little bit less intuitive. But when you think about long-term structural changes that feel almost inevitable, aging populations are a huge part of that. So at the end of this decade, there should be more grandparents in this children than grandchildren for the first time in our history. And about five, 10 years after that, the same phenomenon will be true around the world.

(04:14):

That creates investment opportunities in areas like genomics and immunology to treat that and serve that aging population. Third, we have urbanization. So this is the rise of cities in emerging markets and their revitalization in developed markets. The World Bank estimates about a hundred trillion of infrastructure needs around the world as cities in emerging markets double in size in many cases, and in developed markets need infrastructure, revitalization.

(04:42):

Climate change is our fourth area, and here we're really focused on innovation. So be that clean energy. It could be electric vehicles. It could be green building materials associated with infrastructure. And then last and not least, and this one really cuts through everything else, this idea of emerging global wealth, that one to 2 billion people are set to enter the global middle class in the next 10 years, and that over 90% of those people live in emerging markets.

(05:10):

Today, that's a massive change in wealth and consumption. So those are the five megatrends, and then we have those investible themes that sit underneath them.

Dave Alison (05:19):

Gotcha. Yeah, I think that even for myself as I think of Megatrends, the thing that jumps out at me like I can't open Twitter or the news without hearing of ChatGPT and artificial intelligence. So many of the clients that I personally deal with are working at big tech. They're working at Meta, they're working at Apple, they're working at Google. Again, it seems like every third word you hear out of their mouth is artificial intelligence.

(05:45):

So that's really interesting to think about some of those other themes around demographic and global wealth like you mentioned earlier. As we think of those five themes today, and you think about your experience in megatrend investing, if we were sitting here three, four, five years ago, what might some megatrends have been? Can you give other examples of how this is played out if you have your five kind of defined ones today. Are they similar? Have they evolved? One more question just on top of that as you think about your responses, what tends to be a time horizon around the evolution of this?

(06:27):

Because it's interesting, I know a lot of these tech companies have been working on artificial intelligence and autonomous vehicles and stuff for a long time, but it seems like 2023 is the year that it is in our face everywhere we go from a media standpoint. So what are some of your thoughts there?

Jeff Spiegel (06:46):

So when we think about the five megatrends themselves, those are pretty stable, right? They're very big. They're very long-term. They're very high level. It's the individual themes that change and evolve. So I'll give you an example of one that played out, I think more powerfully than even we ever could have expected, and one that frankly didn't. So genomics and immunology is one that really sticks out. We were looking at areas like mRNA vaccines, which everyone is very familiar with following the pandemic years before that. And the expectation was going into the year 2020 that it could be five years if not longer, until we had commercial uses of those sorts of solutions.

(07:27):

The pandemic accelerated the trends, and suddenly mRNA vaccines became a massive business. Companies that had no revenue prior to the pandemic had billions of dollars of revenue. Even though you had that moment, that explosion, we were all talking about this amazing innovation around these mRNA vaccines. The story didn't end there, right? Now, we're looking forward, we're a little bit more mature, but we're seeing the potential for these mRNA vaccines to be used against influenza, HIV and other areas.

(07:57):

So this is a trend that moved faster than expected, and even after that sort of big bang moment in 2020 and 2021 continues to persist, evolve, and grow. A counter example of a trend that didn't work out quite as well is around the mid 2010s, there was a lot of excitement about 3D printing. 3D printing is going to completely revolutionize the way we produce everything at a broad manufacturing level, but so much so that I'm going to have a 3D printer over here in my house and be able to print out whatever I need.

(08:29):

That ultimately didn't pay out. So I think for investors, to your point at the beginning of the call, of course, we believe that investors should have exposure to long-term innovations as a really critical part of their portfolio. But what's also important is to be diversified. Not every exciting theme is going to play out, but over time, we work really hard here at BlackRock to think about what are the ones that are so powerful that we can have really high conviction in them.

(08:56):

No one is going to get it right a hundred percent of the time. So being thoughtful, being diversified in your approach is important. I would go maybe even a step further to say, being diversified by owning a range of themes, so not just 3D printing and technology, but also robotics and cybersecurity is critical, but so is holding a range of companies. So if you're excited about robotics or cybersecurity, not just trying to pick one winner, but getting access to a theme holistically. So as long as the theme succeeds, your investment can succeed with it.

(09:28):

We call that this idea of theme beta. You're betting on the theme as opposed to having to choose which one of three companies, for example, is going to be the ultimate winner in it, which has a lot of management risk on it, personality risk on it, accounting risk, and all these features of individual companies. So we like to be diversified across multiple themes as well as within a theme into multiple potential winning companies.

Dave Alison (09:52):

Gotcha. So that's a big part of what your day-to-day is in building some of these products that I share is that give advisors like myself access to be able to set aside some allocation to bet on the theme, if you will, or everyday investors access to stuff that maybe they don't have the time, energy, or ability to research, nor do they have access to potentially some of these companies. How much of this, if you looked at overall megatrend investing, I know certainly kind of let's at least look at the tech side of things like big tech is kind of headfirst into this already. You have companies like Meta, Google, Apple, Amazon.

(10:34):

Just by default of owning an S&P 500 index fund, you are going to have a pretty decent exposure to megatrend investing, are you not? Is that a pretty correct assessment?

Jeff Spiegel (10:47):

So we actually developed a really interesting tool on this subject. We call it our X-ray tool. And basically what it allows us to do is take a look at any portfolio, the S&P 500 could be one example and say, "You know how much thematic exposure is in there?" Now, if you were to look at one of those mega-cap tech companies that you just mentioned, that could make up 5% of the S&P 500, if they have some exposure to the theme, you could look at the S&P and say, "Wow, 5% of my portfolio is exposed to robotics because one of those mega cap tech companies plays in that space."

(11:20):

Or better example to what you were just talking about, artificial intelligence. But when we actually take a look under the hood and we think about the pure play companies that are associated with a theme, they're often going to be missing from those broad benchmarks, especially the large and the mid-caps. So when we focus across the board in some themes like clean energy and cybersecurity and genomics, we find the S&P 500 has less than a 1% exposure to any of them.

(11:49):

We focus on others like artificial intelligence. It might appear that there's a really high percentage because of those few big companies, but you're still missing a lot of the pure plays. Your true exposure is lower than you think it is with some of those diversified mega-cap tech names.

Dave Alison (12:05):

Yeah. I find that interesting. That tool was really helpful. We have a little bit more of a growth or aggressive portfolio, again, where we're making a little bit more of a bet for some of our clients that want to have some exposure to this type of investment. And just kind of overlaying that X-ray was really interesting to see. Maybe some areas, I know some of the things that we added to your point were the global clean energy, the self-driving EV and tech, the genomics, robotics, and cybersecurity as just being able to have a little bit more exposure than maybe what we were gaining through broad-based diversification.

(12:41):

So just a really great product for investors that want to be able to have a little bit heavier tilt towards some of these things that really could change the world.

Jeff Spiegel (12:52):

Yeah. And I think you guys are taking an incredibly thoughtful approach. So a lot of investors might seek to incorporate megatrends without first asking the question, what is my starting exposure? Which you would never do if you were adding something like international or a sector. It may be a little less obvious or a little less intuitive what theme exposure is, but we should also start by understanding our starting position. So we're excited about that tool. We're excited to partner with thoughtful investors like you on deploying it to serve their clients.

Dave Alison (13:24):

Now, tell me a little bit about the construction or the makeup that your team is focused on? If we take one of these as an example, self-driving, EV and tech. The name that I think stands out to all of us is Tesla, I'm sure, and obviously by owning the S&P 500, we already own that. But as you're looking at building out that fund to be able to gain as you mentioned earlier, a bigger basket of securities or companies, how are you determining what fits in that basket, what doesn't. I'm sure it's not just as simple as, "Hey, anyone who manufactures or sells EVs is going to be in there."

(14:04):

So can you talk us through, and maybe if EV isn't the best one, if you have another good example, whether it's clean energy or genomics or any of the other thematic funds that you have.

Jeff Spiegel (14:15):

So EV is actually a great example. So first we start with the question, does this theme align with a megatrend, right? Is electric vehicles part of megatrends? And actually I can see multiple megatrends of which it fits, right? It's a technological megatrend. It's a climate related megatrend. It's a demographic megatrend with younger consumers having different preferences. So it definitely fits that first test. The second piece is what are the sub-themes that are associated with this? So obviously one of them is electric vehicle manufacturing, but there are more, right? So who are beneficiaries in a world of many more electric vehicles? Certainly those car makers, but also the firms that build batteries, the firms that build the charging infrastructure, right? Charging stations that are becoming ever more ubiquitous across the country. And then some of the folks who build inputs into those vehicles, be it in semiconductor space or various pieces of software.

(15:10):

So you end up with this whole value chain, which is really important. And then at this point, there's very few car companies that aren't already producing some electric vehicles or at least have plans to move their fleets to being more fully electric. There's a couple of really important questions that, that raises. One is just because this company produces one model and maybe it's 1% of their sales in electric vehicles, should they really be in that ETF? Probably not, right?

(15:40):

We don't just want to see that they make EVs. We want to see that their performance is economically sensitive to EVs, that if the EV market grows, it'll actually be meaningful to that company's bottom line. And then another piece is going to be how does this play against their existing market? So even if a company moves to fully electric vehicles, are they going to be more profitable than they were when they sold traditional gas powered vehicles? That's going to be another really important thing to assess.

(16:10):

So it's really a question of what are all the pieces of the value chain and thinking creatively about downstream beneficiaries, and then assessing individual companies based on whether they're giving you real exposure or pure exposure to the theme versus having a passing connection to it or even a large connection, but not in a way that might drive greater performance and profitability.

Dave Alison (16:33):

So would you describe this approach, it's not as if it's a total kind of passive approach to putting together a big basket of anything that could classify as EV or tech. It sounds like you and your team are doing at some level kind of a certain amount of fundamental analysis around the companies and the feasibility of them to excel in this megatrend and produce returns alongside it. Is that a fair assessment?

Jeff Spiegel (17:01):

Yeah. And I'll even be a little more specific. So globally, BlackRock is the largest provider of megatrend ETFs around the world. And that's when you take into account both our active strategies and our index strategies. And by the way, both of those approaches sit within our ETF lineup. So in the United States, we offer about 26 ETFs that provide this exposure. On the index side, we would say index, but I would say these indexes are anything but passive.

(17:29):

So what I mean by that is they evolve dramatically. You can't sort of set it and forget it in a space like electric vehicles because if a new technology is introduced, that index might need to evolve to encompass it. So we're constantly looking at the indexes themselves. And then also we're constantly testing these companies. So annually, even in index ETFs, you'll have a reconstitution where names will move in or out of the benchmark.

(17:56):

In megatrends, you'll actually see that more than in something more traditional like the S&P 500, again, because innovation moves quickly and these ETFs are able to adapt to that on the index side. On the active side, we're directly doing that fundamental analysis. So we have active portfolio managers who are looking at a theme or multiple themes and investing in the firms that they think will be most successful in it. So to bring it down a level, either way you're getting a sophisticated approach to capture the theme. The question really is just whether you're holistically getting that theme beta or whether you have a portfolio manager who's also going to target that theme beta alongside some additional alpha from companies they think will have the best performance.

(18:41):

But both are really sophisticated approaches. And on the index side, I would say pushing the boundaries of indexation to deliver investors that access to innovation.

Dave Alison (18:51):

Yeah, absolutely. So in terms of the suite that... You mentioned 26 different products now that you and your team support. We've mentioned some of the ones already, global clean energy, self-driving, genomics, robotics and artificial intelligence, cybersecurity and tech. Am I missing any or are there any additional kind of sectors or areas outside of those?

Jeff Spiegel (19:19):

Gosh, there's so many and I won't spend the next 10 minutes going through all of them in detail, but a couple that I'm really excited about that weren't on that list would be the future of food is an ETF that we launched more recently that we're incredibly excited about. It ranges from everything to precision agriculture technologies to meatless proteins. And the light ticker for that is IVEG.

(19:44):

Neuroscience is another one that we're incredibly excited about. The next decade in our view in terms of understanding the human mind will be more like what the last two decades were in understanding the human genome. There's just so much untapped potential there and amazing treatments that obviously are great for investors, but I think also are great for all of us and our loved ones in treating areas like dementia, Parkinson's, traumatic brain injuries, and the like.

(20:14):

So I could sort of go on and on, but two of the new ones that I'm really excited about are IBRN, I-B-R-N in neuroscience, and IVEG, I-V-E-G in the future of food.

Dave Alison (20:26):

Nice. Who gets to name these tickers? Those are IVEG, IBRN.

Jeff Spiegel (20:30):

It's one of the best parts of my job. There's a few people who always weigh in, but we have a lot of fun doing it. And building the index is fun. Coming up with the name of the ETF and especially the ticker for the ETF might be even more fun.

Dave Alison (20:45):

Nice, nice. My last question, just big picture on some of these, the access points that you guys have given investors, which is again just awesome. How many companies would you say are typically held? I mean, are we talking thousands? Are we talking hundreds? Are we talking dozens? Would that vary, I guess? I'm sure it would to a certain extent depending on the theme or the megatrend itself.

Jeff Spiegel (21:14):

So one thing we always, of course, keep in mind is ETFs do need to be diversified to a certain extent. So you're generally not going to see anything from us that's going to have fewer than 30 names within it. On average, I would say 30 to 60 names is probably the sweet spot for where our strategies lie. But it really depends in part on the maturity of a theme. So one theme we're really excited about that's been really popular with investors over the last few years is US infrastructure.

(21:44):

Particularly there is IFRA. There's over a hundred names in that ETF. There are just a lot of public companies that are really associated with infrastructure development or infrastructure ownership. But then you take a more concentrated theme, IHAK or cybersecurity ETF, and you have more on the order of 30 names. So it can range, but that 30 to 60 is probably the sweet spot. We do want to err on the side of more purity and more concentration, if anything.

Dave Alison (22:13):

What about something like cryptocurrency and that side of the house that we saw such an explosion of and then such a crash of, and now this year we've seen it continue to lead market returns? I mean, is that something that your team sees as a potential megatrend or is that something that is outside of the box of the definitions and functions of what your team is investing in from a megatrend perspective?

Jeff Spiegel (22:42):

So I'd abstract it just slightly to refer to blockchain, and blockchain for us is very much in that megatrend zone. When we talk about this sort of value chain or ecosystem, cryptocurrency is only one component of that blockchain value chain, not to say chain over and over again. And so IBLC, which is actually our blockchain focused ETF is by far our best performer of the year. And last year unfortunately was not one of our best performers.

(23:13):

So it's certainly a volatile space as we think about the adoption curve of themes. It's definitely in its early stages, which will lead to more volatility. But aside from cryptocurrency, the ways that this technology is going to be used in payments, in cybersecurity, not in the traditional cryptocurrency sense, but whether it's government sponsored types of currencies, we see a lot of growth and opportunity in the space. But again, and I want to keep emphasizing this, you gave me the opportunity to focus on it earlier, whether it's cryptocurrency or blockchain, cybersecurity, neuroscience, food, you have to take a diversified holding set of these themes because each one is going to be at the very least volatile. And not every single one of them is always going to be successful as we talked about with 3D printing.

Dave Alison (24:00):

Absolutely. I mean, that's why I think going back to where we started is you start with the foundational portfolio approach and then layer in some of these as a satellite around it that can give you some exposure to these areas if you think there's an opportunity there. And that's what we've done for a few of our portfolios.

(24:19):

The thing I want to close out with here is I think about this, there's so much opportunity out there. We see it from some of the biggest companies in the world who are investing heavily in a lot of the areas we just mentioned, but there's also this huge universe of startups, private companies. In terms of what you are building here, is it mostly just publicly traded companies at this point? And is there any kind of access or data points, or how do you think about the private marketplace around here also who is innovating at a pretty rapid pace?

Jeff Spiegel (24:57):

Yes. So from my point of view or my purview, I should say, at BlackRock, we focus only on public equities, again, through active management or index management. Broader BlackRock has an industry-leading alternatives business where you'll find areas like private infrastructure strategies that are very much connected to megatrends, very much connected to areas like climate change and urbanization. I think for investors who have the ability to access both pieces of that, that's a great approach to get that traditional equity market beta through public securities, but also if you have the opportunity, some of that private exposure.

(25:35):

What I will say is tricky about the private exposure in particular is it's hard to build a diversified basket of private companies focused on just one theme. And so that becomes more of an investment focus on a particular founder, one particular technology within a theme, one particular business. What we focused on in public equity space is much more of that theme beta. So regardless of this particular firm or founder or technology, we're focused on the theme itself. And if the theme succeeds, the investments should succeed with it, but the two approaches are really complimentary.

Dave Alison (26:11):

Yeah, that's great. Well, this was super helpful and really informative. I know I picked up a lot of great new information here. Jeff, it sounds like you've got a really fun gig there being able to have the purview of all these great, innovative technologies and megatrends that could certainly shape humanity as we know it. And so I appreciate you spending a little bit of time here sharing this insight with us and our clients.

Jeff Spiegel (26:37):

It was a pleasure speaking with you. We really appreciate just how thoughtful you are in your approach, not just to this style of investing, but investing more broadly on behalf of your clients. And next time we're coming up with a ticker, I'll try and give you a shout and see if you have any good ideas on it.

Dave Alison (26:52):

That'd be fun. All right. Well, thanks everybody, and hope you enjoyed the show.

Jeff Spiegel (26:57):

Thanks, Dave.

Dave Alison (27:00):

Awesome. Thank you so much. That was good.

Speaker 3 (27:03):

Financial planning and advisory services are offered through Prosperity Capital Advisors, PCA, an SEC registered investment advisor with its principle place of business in the state of Ohio. Alison Wealth Management and PCA are separate, non-affiliated entities. PCA does not provide tax or legal advice. Insurance and tax services offered through Alison Wealth Management are not affiliated with PCA. Information received from this video should not be viewed as individual investment advice. Content may have been created by a third party and was not written or created by a PCA affiliated advisor and does not represent the views and opinions of PCA or its subsidiaries.

(27:40):

For information pertaining to the registration status of PCA, please contact the firm or refer to the investment advisor public disclosure website. For additional information about PCA, including fees and services, send for our disclosure statement as set forth on form ADB from PCA using the contact information herein. Please read the disclosure statement carefully before you invest or send money.

 

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