Thematic Investing: Megatrends

Interpretation

The charts above show the relative strength of the MSCI Thematic Indices. A rising ratio in these charts signals that the index is outperforming the broader market, while a declining ratio indicates underperformance. These indices, developed by MSCI (Morgan Stanley Capital International), are designed to track companies influenced by significant megatrends, which are long-term structural shifts with the potential to reshape entire industries and transform how we live, work, and interact. Focused on four critical areas: Environment & Resources, Transformative Technologies, Health & Healthcare, and Society & Lifestyle, these indices capture the dynamic forces driving change in global economies. Thematic investing promises to capitalize on these powerful trends, offering a forward-looking approach to investment that aligns with the forces shaping our future.

Data Sources

• MSCI: ACWI IMI
• MSCI: WORLD IMI
• Transformative Technologies:
• MSCI: ACWI IMI ROBOTICS
• MSCI: ACWI IMI CYBERSECURITY
• MSCI: ACWI IMI DIGITAL ECONOMY
• MSCI: ACWI IMI DISRUPTIVE TECHNOLOGY
• MSCI: ACWI IMI FUTURE MOBILITY
• MSCI: ACWI IMI NEXT GENERATION INTERNET INNOVATION
• MSCI: ACWI IMI AUTONOM TECH & INDUSTRIAL INNO
• MSCI: ACWI IMI FINTECH INNOVATION
• MSCI: MSCI World IMI Space Exploration 30 Index
• MSCI: MSCI ACWI IMI Smart Security & Defense Index
• MSCI: MSCI World IMI Blockchain Economy 30 Index
• Environment & Resources:
• MSCI: MSCI World IMI Clean Energy Infrastructure 30 Index
• MSCI: ACWI IMI EFFICIENT ENERGY
• MSCI: MSCI ACWI IMI Sustainable Water Transition Extended Capped Index
• MSCI: MSCI ACWI IMI Hydrogen and Future Fuels Index
• Health & Healthcare:
• MSCI: ACWI IMI GENOMIC INNOVATION
• MSCI: MSCI ACWI IMI Digital Health Index
• Society & Lifestyle:
• MSCI: ACWI IMI SMART CITIES
• MSCI: ACWI IMI AGEING SOCIETY OPPORTUNITIES
• MSCI: ACWI IMI MILLENNIALS
• MSCI: ACWI IMI FUTURE EDUCATION
• MSCI: MSCI ACWI IMI Food Revolution Index

Further Information

• MSCI: Thematic Investing

Interpretation

The chart above offers a different perspective on the same data from the ratios above.

• The MSCI ACWI IMI captures large, mid and small cap representation across 23 Developed Markets (DM) and 24 Emerging Markets (EM) countries. With 8,831 constituents, the index is comprehensive, covering approximately 99% of the global equity investment opportunity set.
• The MSCI WORLD IMI captures large, mid and small cap representation across 23 Developed Markets countries. With 5,472 constituents, the index is comprehensive, covering approximately 99% of the free float-adjusted market capitalization in each country.
• Transformative Technologies:
• The MSCI ACWI IMI ROBOTICS represents companies associated with the development of new products and services focused on artificial intelligence, robots, and automation.
• The MSCI ACWI IMI CYBERSECURITY represents companies focused on developing cybersecurity solutions, protecting digital assets, and ensuring information system security.
• The MSCI ACWI IMI DIGITAL ECONOMY represents companies driving digital economy growth, including e-commerce, digital payments, online platforms, and related technologies.
• The MSCI ACWI IMI DISRUPTIVE TECHNOLOGY represents companies developing or utilizing disruptive technologies with the potential to transform industries and business models.
• The MSCI ACWI IMI FUTURE MOBILITY represents companies developing new products and services focused on energy storage technologies, autonomous vehicles, shared mobility, and new transportation methods.
• The MSCI ACWI IMI NEXT GENERATION INTERNET INNOVATION represents companies involved in developing next-generation internet technologies, including faster, more secure, and more efficient online communication systems.
• The MSCI ACWI IMI AUTONOM TECH & INDUSTRIAL INNO represents companies driving innovation in autonomous technologies and industrial automation, including self-driving vehicles, drones, and advanced manufacturing processes.
• The MSCI ACWI IMI FINTECH INNOVATION represents companies at the forefront of financial technology innovation, including digital payments, blockchain, and other fintech-related developments.
• The MSCI World IMI Space Exploration 30 Index represents companies involved in space exploration and related industries, including satellite technology, space travel, and other extraterrestrial activities.
• The MSCI ACWI IMI Smart Security & Defense Index represents companies developing advanced security and defense technologies, including surveillance, defense systems, and smart security solutions.
• The MSCI World IMI Blockchain Economy 30 Index represents companies leveraging blockchain technology to create new economic models and services, including decentralized finance (DeFi) and cryptocurrencies.
• Environment & Resources:
• The MSCI World IMI Clean Energy Infrastructure 30 Index represents companies involved in developing and maintaining clean energy infrastructure, including renewable energy plants, smart grids, and energy-efficient technologies.
• The MSCI ACWI IMI EFFICIENT ENERGY represents companies involved in developing energy-efficient technologies, which may include advancements in renewable energy, smart grids, and energy storage solutions.
• The MSCI ACWI IMI Sustainable Water Transition Extended Capped Index represents companies involved in sustainable management and use of water resources, including water conservation, desalination, and water purification technologies.
• The MSCI ACWI IMI Hydrogen and Future Fuels Index represents companies involved in developing hydrogen and other alternative fuels that have the potential to play a key role in the transition to a low-carbon economy.
• Health & Healthcare:
• The MSCI ACWI IMI GENOMIC INNOVATION represents companies at the forefront of genomic research and innovation, including gene editing, personalized medicine, and other advanced biotechnology developments.
• The MSCI ACWI IMI Digital Health Index represents companies driving innovation in digital health, including telemedicine, health informatics, wearable health devices, and other digital healthcare solutions.
• Society & Lifestyle:
• The MSCI ACWI IMI SMART CITIES represents companies involved in developing and implementing smart city technologies, including urban planning, sustainable infrastructure, and intelligent transportation systems.
• The MSCI ACWI IMI AGEING SOCIETY OPPORTUNITIES represents companies capitalizing on opportunities presented by an aging global population, including healthcare, retirement planning, and age-friendly products and services.
• The MSCI ACWI IMI MILLENNIALS represents companies catering to the millennial generation, focusing on trends such as digital consumption, social media, and lifestyle preferences of younger consumers.
• The MSCI ACWI IMI FUTURE EDUCATION represents companies driving innovation in education, including online learning, educational technology, and new models of education delivery.
• The MSCI ACWI IMI Food Revolution Index represents companies leading the transformation of the food industry, including sustainable agriculture, plant-based foods, and innovations in food production and distribution.

Further Information

• Longermtrends: Developed Markets
• Longermtrends: Emerging Markets
• Longermtrends: Emerging vs. Developed Markets

Interpretation

This heatmap shows how different megatrends—from AI and Robotics to Clean Energy and the Future of Food—move in relation to each other. Red squares indicate a positive correlation (themes moving together), while blue squares show a negative correlation. Notice how technologically-driven themes are often highly correlated, as innovation in one area can drive growth in others.

For thematic investors, understanding these correlations is key to building a diversified portfolio of future-focused ideas. Combining themes with low or negative correlations can help balance returns and reduce the risk of over-exposure to a single trend. This approach embodies Ray Dalio's "Holy Grail of Investing"—using uncorrelated assets to enhance portfolio resilience.

To create this chart, weekly returns are calculated for each thematic index, and the Pearson correlation is computed for every pair. The heatmap is then organized using hierarchical clustering to group the most similar themes together, making it easier to see the underlying connections between global megatrends.

Interpretation

The Minimum Spanning Tree (MST) simplifies the correlation matrix by showing only the strongest connections between indices. If two indices are linked, they have a strong positive correlation and tend to move in tandem. This helps identify clusters of related assets and is useful for portfolio diversification.
The tree is constructed by converting the correlations into distances and then finding the set of connections that links all indices with the minimum total distance. As noted by Marti, Gautier, et al. (2017), the optimal Markowitz portfolio is often found at the tree's outskirts, and the tree tends to shrink during a financial crisis.