4 megatrends that could impact investment returns

MARK CINTOLO: Hello, everyone. This is Mark Cintolo from the Portfolio Analysis and Consulting team at Natixis Investment Managers Solutions. I'm joined by my colleague Matt Hunyadi. And today we're going to talk about a new framework that we've built to explore the technological, societal and geopolitical themes that we think will impact returns over the next 5 to 10 years. We're calling this framework megatrends.

And Matt, one of the important concepts underlying this framework and many of the other frameworks we built in our investment committee over the last several years is that markets are forward discounting. Basically the market assigns probabilities to certain events, but over time, uncertainty turns to certainty. Outcomes are repriced and we experience dispersion of returns.

MATT HUNYADI: Certainly, and I’d want to point out that while our cyclicality versus inflation framework focuses on macroeconomic return drivers over the short/intermediate term, our megatrends framework focuses on the intermediate and long term. And like cyclicality versus inflation, accelerations or disruptions in these themes can drive major differences between baseline return outcomes in asset classes, sectors, industries and securities.

MATT HUNYADI: So we came up with four main themes that we think will color the return environment over the next 5 to 10 years. Those are artificial intelligence, infrastructure buildout, demographic shifts and deglobalization.

MARK CINTOLO: To be included as a megatrend, we were looking for a broad, multi-faceted impact on various aspects of the market. And while we know there will be company-level winners and losers with any major megatrend, we were looking for trends impacting industries as opposed to individual companies.

Let’s start with artificial intelligence. Whenever there’s a technological advancement it’s common to see a lag between innovation and widespread adoption. If we see a more transformational outcome for AI over the next several years, you could see productivity gains that provide an economic boost on a par with the introduction of electricity and computers.

But there are risks. Higher productivity could lead to a significant rise in unemployment or structural unemployment, and less widespread adoption and/or lower than expected productivity gains, that would hurt returns. You could also see headwinds from greater regulation of the tech sector.

MATT HUNYADI: Another challenge is that your opportunity set is not just public markets, so finding opportunities in both public and private markets may be a more effective approach. If your opportunity set is just public, of course you would still benefit from these themes by having exposure to some of the mega cap growth companies, many of which are flush with cash, already investing in AI, and receiving AI scores in our framework. But private equity can target certain unique industries with AI growth opportunities, allowing you to benefit from fishing in a bigger pond.

MARK CINTOLO: To inform our assumptions, we looked at performance of each of the 160+ sub-industries on key days. When ChatGPT was released back in 2022, you saw outsized returns from many AI-related segments of the market that day. Then on the DeepSeek day earlier in 2025, you saw many of those same names sell off. This rank order of each sub-industry based on the biggest performance differences provides a nice initial signal for our theme. What we find are largely technology names plus some tech-powered mega cap companies (such as Tesla, Google, Meta) that are classified in other industries.

But if you are looking at these key days you are really arguably capturing first order AI themes that the market is already aware of and pricing in. We think you might find second order beneficiaries in places like utilities, as well as broader technology names including non-US technology names. And then there are also those companies that would be beneficiaries of AI-facilitated new product offerings or beneficiaries of AI-driven productivity enhancements. You know it’s probably gonna be the case that lots of companies and industries will likely benefit to an extent, so it’s more the disproportionate beneficiaries that we are trying to identify here.

Some of these secondary industries held up reasonably well even on the DeepSeek day.

MATT HUNYADI: Our second trend is infrastructure build out.

Data accessibility is critical to support AI growth, which requires investments in power generation, transmission, and distribution. Specifics around future electricity demand are unknown but consensus supports a dramatic increase, which further supports investment in data centers and manufacturing. We might find that electric utilities is no longer a boring stable market but rather an area with a lot of opportunities for those with capital and expertise to provide solutions.

Even though a lot of our existing electricity generation is fossil fuels, new generation being added to the grid has been disproportionally clean energy.  So if we need to generate a lot more it stands to reason those clean areas could become bigger beneficiaries.

US$94tn of funding needed by 2040 to rebuild aging assets and expand the infrastructure supporting technology. Investing directly in infrastructure is sometimes tough in the US as some of the roads, bridges, and other transportations are financed with muni bonds. But similar to AI, there are ways to play the theme by investing in building blocks and facilitators.

Also important to invest in our digital infrastructure to protect against the growing risk posed by cybercrime, which is estimated to cost nearly $10 trillion in 2025. As a reference point in 2024 GDP in the US was 23.3T, so after the US and China this would be the third largest economy. We’ll need to continue to make investments in research and development of protective technology.

MARK CINTOLO: Without a catalyst, investing in this theme could just be slow grind higher. But you would have the potential for outsized returns on key days like we saw with DeepSeek, if we passed a new infrastructure bill for example.

MARK CINTOLO: Our third megatrend is called demographics shifts and healthier living. There are a number of components to this. The ageing population, and global gains in life expectancy have important impacts for the health care sector. The wealth transfer between baby boomers to Gen X and millennials should lead to increased demand for asset and wealth management services. There are also many potential impacts due to the greater representation of millennials in the economy. This cohort often prioritizes experiences over non-essential goods, so there could be more runway for growth in areas like ride sharing services and cashless transactions, both in the US and overseas. A greater focus on health and wellness is also impacting many consumer trends as well.

MARK CINTOLO: There’s also an interesting impact with real estate and residential housing. The US population is not uniformly distributed across age cohorts. We have bulges and gaps at certain ages for different reasons. Post WW2 we had the baby boom. For a 25 year stretch as baby boomers had children we had an echo boom. Since then the birth rate has declined, particularly post GFC. Higher housing costs have absorbed many of the gains from two-income households while the cost of daycare, in particular, has made it extremely expensive for young couples to have children, further limiting births.

So what does this age distribution mean and what will it mean 5 years from now?

Think about this blue area as your student housing population. That’s expected to be flat. The purple area is rental, which is expected to decline by 2030. In the green zone we start to see a population bulge. The most common year to be born in among US residents is 1991. So these people are turning 34 this year and 39 in 2030. That’s leading to a meaningful increase to 35-54 range that makes up a lot of the demand for single family housing. The aging baby boomers are creating pretty meaningful increases to this portion of the chart highlighted in orange. So demand for 55+ senior housing should be strong over the next 5 years as well.

So when we think about real estate demand, there’s is almost no growth expected in the ages that would be prime for student housing and rental housing. But substantial growth in single family and senior housing. If you have exposure to these areas of the market you could see headwinds or tailwinds from this demographic shift.

MATT HUNYADI: Lastly, we have our deglobalization theme.

Two components of the deglobalization section are return laggards due to tariff risk and return leaders due to onshoring and protectionism. This theme is evolving and some of the guidance we’re revising in real time in the wakes of liberation day and the ongoing bi-lateral trade agreements that continue to hit the tape here. Similar to AI, we’ve been able to look at performance at key dates to think about tariff risk.  Many of the riskier areas tend to be in those consumer discretionary names. It’s a direct hit from tariffs as well as demand destruction.  Onshoring and protectionism can immediately increase demand for construction services or materials companies that are domestically located or take longer to take effect as other businesses need to re-locate their business operations in one’s home country to stimulate demand.

MATT HUNYADI: Certain industries are likely to be winners/losers based on the speed and degree to which these themes play out. For these 4 trends and 12 sub-trends, we’ve assigned scores to all 160+ sub industries. Scores range from -1 to positive 1 with the ability to get 0.5s and 0 . We can score strategies and portfolios and position key products that help advisors invest in the themes that they want to in client portfolios.

So now let’s explore some of our asset allocation takeaways for each of the themes, starting with AI:

AI is heavily concentrated in large caps, and more specifically in large-cap growth. This comes as no surprise given the rise of some of these mega-cap companies that have already made significant investments in AI and broader technology. The best ways to gain exposure from a sector perspective are technology, and then utilities as a second order.

Infrastructure scores are skewed more toward SMID caps, with the highest scores in mid-caps driven by building blocks. From a sector perspective - utilities, energy, industrials and materials, all have meaningfully higher scores than the broad index and S&P 500®. 

Demographics and deglobalization scores range from negative to positive, indicating you can have exposure to return laggards that brings down your total score. Think of this as exposure to a tobacco company that would be a drag on returns in the healthier living sub-theme, which would roll up to the demographics theme.

So with demographics, this favors small and mid-cap growth companies driven by evolving consumer preferences. For example, when you are thinking about evolving consumer preferences, these are things like Apple Pay, PayPal or Venmo that help facilitate transactions between people and businesses. The highest scoring sector was health care, and the lowest scoring sector in this theme was consumer staples.

Lastly is scoring for deglobalization. This is led by small growth companies and broader mid-caps, as these companies generate a majority of their revenues from the domestic economy. This more than outweighs the negative impact from tariffs on some of these smaller companies. Industrials scored the highest in deglobalization, whereas consumer discretionary scored the lowest. For discretionary, this intuitively makes sense to us when thinking about the high dependence these companies have to a global supply chain, as well as the immediate impact that you have from tariffs to consumer demand.

MARK CINTOLO: We think there’s a use case for the investor who wants to execute on a view, investor who wants to stop unknowingly positioning for a view that they don’t hold. and for someone looking for diversification at the portfolio or the asset category level. So whether you are an asset allocator or in manager research, we can customize these frameworks to align with your objectives. We can also show how portfolios compare to other portfolios in our peer database which is sometimes interesting.

With cyclicality versus inflation, one of the examples we would often use would be pairing a cyclical US large cap value with a defensive US large cap value. With megatrends, maybe another example might be you hold two large cap growth strategies, one with a high score to AI and another with a low score to AI. You can also go one level deeper to our subthemes. Two strategies that both have high scores to a given megatrend like AI could still be paired if they achieve that score in different ways. For example, one large cap growth strategy with a high AI score led by building blocks could be paired with another large cap growth strategy with a High AI score led by product evolution.

MATT HUNYADI: Another way to view your portfolio’s exposures is separating out the impacts from asset allocation versus active management. Let’s say you are neutral to your benchmark for mid-caps, but you have an underweight to the infrastructure theme, namely in building blocks. The question then becomes: one, should you overweight mid-caps in general or two, look for another manager in the space with higher exposures to the infrastructure theme? Either could benefit your portfolio if we pass a sweeping infrastructure bill say tomorrow, but both are quite different when considering the goals and objectives of the portfolio. These are some of the ways we’ll focus on positioning portfolios based on the opportunities and risks that we see in the future, and we can help you do the same.   

MARK CINTOLO: That concludes our discussion on megatrends. For more of our research and investment insights, please visit our website im.natixis.com. And, as always, feel free to reach out to us with any questions, comments, or for customized insights tailored to your specific portfolio. On behalf of the Portfolio Analysis and Consulting Team at Natixis Investment Managers Solutions, thanks for your continued partnership, and thanks for listening.