Where does the world's largest active manager say to invest?

Capital Group - which has US$2.7 trillion in equity assets under management - has identified three megatrends poised to upend industries and kick down the doors to fresh investment opportunities.

The Californian headquartered investment manager, that's exclusively focused on active equity and fixed income, and is privately owned by its staff, recently told its local clients and advisers that the future of technology, healthcare, and global trade are "very durable" trends.

When it comes to technology, artificial intelligence (AI) has not only captured the imaginations of investors in tech companies but is poised to transcend beyond generative chatbots, according to a "megatrends to watch" report by Capital Group.

"... AI-powered robots could have an even bigger economic impact [than language models like ChatGPT] over the next decade - with their applications used everywhere from homes to factories to hospitals," the report said.

For example, when Amazon started working on robots to pick and pack items into shipping boxes, failure rates were high, and successful picks took up to two minutes each. Seven years later, its new 'Sparrow' robot can process about two-thirds of the 100 million products in a typical warehouse, needing seconds for each.

Yet, if you ask someone on the street about AI, that's not the first thing they talk about, according to Capital Group investment director Mathew Reynolds.

Reynolds said that's why having an analyst team with a strong breadth, good cognitive diversity, and a wide range of experiences are so important to uncovering these opportunities on a worldwide basis.

He said that healthcare is very similar, noting that although obesity drugs receive the most attention from investors, there is a wave of innovation happening with companies developing technologies to possibly cure major diseases.

For example, the report noted the rapidly advancing field of cell therapy, which involves modifying cells outside the body and then infusing them into patients. This approach has gained approval for use against certain blood cancers that previously had few treatment options.

The top pharmaceutical companies worldwide by the number of drugs in their research and development pipeline are Roche (194), Novartis (191), Takeda (178), and Bristol Myers Squibb (175), according to the report.

"That's a lot of drugs potentially coming down the pipeline," Reynolds said.

"Now, of course, some will fail; this is pharmaceuticals after all. But it's interesting that there's a lot there."

Reynolds said with good resources - analysts who know the companies and the science involved - investors can make a formal investment view on the likelihood of success of that drug pipeline.

The report said shifting trade winds are also bringing opportunities to new markets.

"Rising geopolitical logistical issues during the COVID pandemic forced many companies to adopt a 'China Plus One' strategy, diversifying their supply chains out of China," the report said.

This resulted in emerging markets benefiting from new trade partners and opportunities.

Reynolds said supply lines are harder for people to grasp because it takes companies years to complete and is hidden from consumers; it's not something read about in the press every day.

He cited the report where a Capital Group portfolio manager said he'll be looking to invest in businesses that could benefit from this change, such as the construction and materials companies needed to build new facilities. Also, real estate developers, who are getting their pick of customers in many locations, appear attractive.

A Morningstar analysis shows Capital Group is the largest purely active fund manager.