06 May 2020

Smart Cities – Defining the trend, describing the transition


As part of our guest blog series on thematic investing, MSCI and Lukas Neckermann share their views on Smart Cities. With the rapid urbanisation megatrend heavily impacting the lives of generations to come, read on to find out how Smart Cities will play a critical role in adapting to change.

Urbanisation and the growth of “megacities”

Ancient Rome could be described as the world’s first ‘megacity’ with a population of more than 4 million people, according to the Augustine census. Moreover, through its planned infrastructure and services, it helped define how cities could operate and be structured. Today, there are 33 megacities (now defined as urban areas with over 10 million residents) globally, and the U.N. has projected that this figure will grow to 43 within the next decade.1 These estimates place the vast majority of the new megacities in emerging markets.

Against a backdrop of accelerating urbanization and new city development, there has been a parallel growth in the number of companies seeking to develop solutions that may support the efficient and sustainable operation of a city in a technologically ‘smart’ way. The emphasis is on the everyday services and activities that facilitate the growth of a city, improve its citizens’ quality of life and address key challenges inherent with any influx of new residents and activities into an urban area including:

  • Environmental issues: pollution, noise, water supply, energy production, etc.
  • Land-related issues: pressure on land and housing, management of effective land use and urban sprawl
  • Public health concerns: mortality, infection control, sanitation and food safety

Studies have shown that to curtail such potentially negative effects, cities should limit their population growth rate to 1% p.a. However, developing countries, in particular, have experienced significantly higher rates.2

1 U.N., World Urbanization Prospects: The 2018 Revision
2 https://worldpopulationhistory.org/urbanization-and-the-megacity

MSCI Smart Cities

MSCI would like to thank Lukas Neckermann, Managing Director of Neckermann Strategic Advisors, for useful discussions and insightful analysis of this megatrend which have greatly facilitated the preparation of this article.

Lukas Neckermann is the author of three books: “The Mobility Revolution” (2015), “Corporate Mobility Breakthrough 2020” (2017) and “Smart Cities, Smart Mobility: Transforming the Way We Live and Work” (2018).

The view from Lyxor

Our world is changing. Technological breakthroughs, economic evolution and the climate emergency are reshaping reality for billions of people. Will your portfolio keep up?

Each of our Thematic ETFs combines human insight, natural language processing and data analysis techniques in a unique way to identify the companies that matter most, and ensure your portfolio stays one step ahead. As a pioneering ETF provider with a history of innovation, we’ve gone the extra mile to build some truly state-of-the art funds for a new state of mind.

We’re incredibly excited about this range and hope you can join us in preparing portfolios for change.

Target TER for these Thematic ETFs is 0.45% but has temporarily been decreased to 0.15% until September 2021.

MSCI Disclaimer
The information contained herein (the “Information”) may not be reproduced or disseminated in whole or in part withoutprior written permission from MSCI. The Information may not be used to verify or correct other data, to create indexes,risk models, or analytics, or in connection with issuing, offering, sponsoring, managing or marketing any securities,portfolios, financial products or other investment vehicles. Historical data and analysis should not be taken as anindication or guarantee of any future performance, analysis, forecast or prediction. None of the Information or MSCIindex or other product or service constitutes an offer to buy or sell, or a promotion or recommendation of, anysecurity, financial instrument or product or trading strategy. Further, none of the Information or any MSCI index isintended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investmentdecision and may not be relied on as such. The Information is provided “as is” and the user of the Information assumesthe entire risk of any use it may make or permit to be made of the Information. NONE OF MSCI INC. OR ANY OF ITSSUBSIDIARIES OR ITS OR THEIR DIRECT OR INDIRECT SUPPLIERS OR ANY THIRD PARTY INVOLVED IN THE MAKING OR COMPILING OF THEINFORMATION (EACH, AN “MSCI PARTY”) MAKES ANY WARRANTIES OR REPRESENTATIONS AND, TO THE MAXIMUM EXTENT PERMITTED BY LAW,EACH MSCI PARTY HEREBY EXPRESSLY DISCLAIMS ALL IMPLIED WARRANTIES, INCLUDING WARRANTIES OF MERCHANTABILITY AND FITNESSFOR A PARTICULAR PURPOSE. WITHOUT LIMITING ANY OF THE FOREGOING AND TO THE MAXIMUM EXTENT PERMITTED BY LAW, IN NO EVENTSHALL ANY OF THE MSCI PARTIES HAVE ANY LIABILITY REGARDING ANY OF THE INFORMATION FOR ANY DIRECT, INDIRECT, SPECIAL,PUNITIVE, CONSEQUENTIAL (INCLUDING LOST PROFITS) OR ANY OTHER DAMAGES EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCHDAMAGES. The foregoing shall not exclude or limit any liability that may not by applicable law be excluded or limited.

This article is for informative purposes only, and should not be taken as investment advice. Lyxor ETF does not in anyway endorse or promote the companies mentioned in this article. The opinions expressed by Lukas Neckermann are his own,and do not necessarily reflect the views of Lyxor International Asset Management or Societe Generale. Capital at risk.Please read our Risk Warning below.

Risk Warning
This document is for the exclusive use of investors acting on their own account and categorised either as “EligibleCounterparties” or “Professional Clients” within the meaning of Markets in Financial Instruments Directive 2014/65/EU.These products comply with the UCITS Directive (2009/65/EC). Société Générale and Lyxor International Asset Management(LIAM) recommend that investors read carefully the “investment risks” section of the product’s documentation (prospectusand KIID). The prospectus and KIID are available free of charge on www.lyxoretf.com, and upon request toclient-services-etf@lyxor.com.

Except for the United-Kingdom, where this communication is issued in the UK by Lyxor Asset Management UK LLP, which isauthorized and regulated by the Financial Conduct Authority in the UK under Registration Number 435658, thiscommunication is issued by Lyxor International Asset Management (LIAM), a French management company authorized by theAutorité des marchés financiers and placed under the regulations of the UCITS (2014/91/EU) and AIFM (2011/61/EU)Directives. Société Générale is a French credit institution (bank) authorised by the Autorité de contrôle prudentiel etde résolution (the French Prudential Control Authority).

The products mentioned are the object of market-making contracts, the purpose of which is to ensure the liquidity of theproducts on the London Stock Exchange, assuming normal market conditions and normally functioning computer systems.Units of a specific UCITS ETF managed by an asset manager and purchased on the secondary market cannot usually be solddirectly back to the asset manager itself. Investors must buy and sell units on a secondary market with the assistanceof an intermediary (e.g. a stockbroker) and may incur fees for doing so. In addition, investors may pay more than thecurrent net asset value when buying units and may receive less than the current net asset value when selling them.Updated composition of the product’s investment portfolio is available on www.lyxoretf.com. In addition, the indicativenet asset value is published on the Reuters and Bloomberg pages of the product, and might also be mentioned on thewebsites of the stock exchanges where the product is listed.

Prior to investing in the product, investors should seek independent financial, tax, accounting and legal advice. It iseach investor’s responsibility to ascertain that it is authorised to subscribe, or invest into this product. Thisdocument is of a commercial nature and not of a regulatory nature. This material is of a commercial nature and not aregulatory nature. This document does not constitute an offer, or an invitation to make an offer, from Société Générale,Lyxor Asset Management (together with its affiliates, Lyxor AM) or any of their respective subsidiaries to purchase orsell the product referred to herein.

Research disclaimer
Lyxor International Asset Management (“LIAM”) or its employees may have or maintain business relationships withcompanies covered in its research reports. As a result, investors should be aware that LIAM and its employees may have aconflict of interest that could affect the objectivity of this report. Investors should consider this report as only asingle factor in making their investment decision. Please see appendix at the end of this report for the analyst(s)certification(s), important disclosures and disclaimers. Alternatively, visit our global research disclosure websitewww.lyxoretf.com/compliance.

Conflicts of interest
This research contains the views, opinions and recommendations of Lyxor International Asset Management (“LIAM”) CrossAsset and ETF research analysts and/or strategists. To the extent that this research contains trade ideas based on macroviews of economic market conditions or relative value, it may differ from the fundamental Cross Asset and ETF Researchopinions and recommendations contained in Cross Asset and ETF Research sector or company research reports and from theviews and opinions of other departments of LIAM and its affiliates. Lyxor Cross Asset and ETF research analysts and/orstrategists routinely consult with LIAM sales and portfolio management personnel regarding market information including,but not limited to, pricing, spread levels and trading activity of ETFs tracking equity, fixed income and commodityindices. Trading desks may trade, or have traded, as principal on the basis of the research analyst(s) views andreports. Lyxor has mandatory research policies and procedures that are reasonably designed to (i) ensure that purportedfacts in research reports are based on reliable information and (ii) to prevent improper selective or tiereddissemination of research reports. In addition, research analysts receive compensation based, in part, on the qualityand accuracy of their analysis, client feedback, competitive factors and LIAM’s total revenues including revenues frommanagement fees and investment advisory fees and distribution fees.