Seven funds for seven billion people

While this is a cause for concern, it is also likely to be very profitable for companies involved in supplying these areas.

"There are a growing number of companies providing products and services that offer solutions to issues arising from a hotter and more resource-constrained world," says Simon Ellis, managing director, Legal & General Investments. "The opportunities are broad and global. Capturing the entirety of the theme, rather than one sub-sector of it demands a broadly-based portfolio with a global spread and diverse approach to the industries involved."

This growth could benefit companies in sectors including food, water, energy, healthcare and leisure and, of course, investors who have exposure to these companies.

"While it is easy to get caught up in all of the short-term news surrounding the crisis in the eurozone or whether the US will dip back into recession, big picture strategic thinking focusing on the key trends of the future is the only way to identify the corporate winners of the next generation," says Ryan Hughes, portfolio manager at Skandia Investment Group. "Today's investors cannot ignore the fundamental shift occurring in the global economy and successful companies of the future will be those that embrace and adapt to the rapid change in demographics we are all witnessing."

The only way for a UK investor to achieve a global and diverse spread is via funds, because while the UK stock market has a global reach it cannot properly tap into all these trends. By no means an exhaustive list, we have set out seven funds which tap into a number of these trends and should benefit from population growth.

Food: ETFX S-Net ITG Global Agri Business Fund

More people means more food is needed, so the most basic outcome of rising world population is a greater need for agriculture. Long-term growth drivers for this sector also include a decrease in farmland per inhabitant, meaning a need for more effective agrichemicals and increased protein consumption in developing countries.

Agriculture funds include ETFX S-Net ITG Global Agri Business Fund, which tracks the S-Network ITG Global Agriculture Index. A passive low cost exchange-traded fund (ETF) is a good option because if you are playing this theme you should hold your funds for the long term, and higher fund costs over time will eat into your returns. This fund has a reasonable 0.65 per cent total expense ratio (TER), in contrast to active agriculture funds, many of which have TERs of more than 2 per cent.

ETFX S-Net ITG Global Agri Business can also be held within an individual savings account (Isa) and has UK reporting status, meaning you incur capital gains rather than income tax when you sell it. Many active agriculture funds are domiciled offshore, so this is not necessarily the case with them.

The S-Network ITG Global Agriculture Index has a strong long-term performance rising nearly 87 per cent over the past five years, while MSCI World has fallen nearly 8 per cent. It is volatile over the short term, but as you should hold this for the long term, this should not be a concern.

The index comprises around 30 global agricultural companies that are focused on four main sectors reflecting different parts and areas of food production:

■ Seeds, chemicals and fertilisers (59 per cent of assets);

■ Equipment and irrigation (10 per cent);

■ Commodity agricultural products (28 per cent); and

■ Livestock producers (3 per cent).

The companies are mostly listed in developed countries but do business globally.

ETFX S-Net ITG Global Agri Business Fund makes its returns via a swap. This method relies on a counterparty, usually a bank, to deliver the index returns, rather than buying the actual shares. A risk with swap counter parties is that, because insolvent, they will be unable to deliver the index returns. ETF Securities uses four swap counterparties rather than one drastically reducing this risk.

Source: ETF Securities.

Performance data as at 4 November 2011.

Water: PowerShares Palisades Global Water Fund

As the world population rises, it will require something even more basic than food: water which is safe to drink and wash in, as well as for rising industrial use. All this will benefit companies involved in water, so a water fund is also a very good way to play the population theme.

Urbanisation in the emerging markets is increasing the use of water because people in cities consume around four times as much as country dwellers, while rising meat consumption means more water is needed to grow crops to feed livestock. If climate change progresses as anticipated, more of the world will become dry, constraining supply, at the same time as water is becoming more expensive.

An ETF such as PowerShares Palisades Global Water Fund makes sense because of its relatively low TER of 0.75 per cent. This is much more reasonable than many active water funds which tend to have TERs in excess of 1.5 per cent. Palisades Global Water seeks capital appreciation via a broadly diversified segment of securities investing in water or water-related activities. Around 60 per cent of the fund's sector allocation is industrials, with a quarter in companies classified as utilities. The remainder is in materials and information technology. The 33 companies it invests in are largely listed in developed countries, including the US, (22.67 per cent of assets,) Japan (13.76 per cent) and Netherlands (20.68 per cent).

This fund also has UK reporting status and can be held in an Isa.

PowerShares Palisades Global Water Fund buys the shares in the index it tracks rather getting its returns via a swap counter party eliminating this risk. Since inception the fund has tracked its index Palisades Global Water closely - underperforming by just 0.36 per cent.

Source: Powershares

Performance data as at 4 November 2011

Infrastructure: iShares S&P Emerging Market Infrastructure

As world population grows more infrastructure will have to be built to accommodate it, and as population growth is soaring ahead in emerging markets in particular, an infrastructure fund with exposure to this region is a good way to capture this growth.

Developing countries will need substantial amounts of capital for infrastructure to support their expanding economies and be competitive, while emerging market countries, particularly China, India and Brazil, continue to lead in attempts to modernise systems and advance their economies into global leadership positions. For example, much of China's $600bn economic stimulus funding will be spent on infrastructure.

iShares S&P Emerging Market Infrastructure ETF tracks the performance of the shares in the S&P Emerging Markets Infrastructure Index. It buys the shares rather than getting its returns via a swap eliminating the risk of counterparty failure. The fund has tracked its index well since launch with a difference of only 1.46 per cent. Its TER is only 0.74 per cent, a lot less than for actively managed funds, and it has enjoyed strong growth over three and five years, which should continue over the long term.

The companies in the index are 30 of the largest publicly listed emerging market companies in the global listed infrastructure. Around 40 per cent of the fund's assets are industrials, with a further 40 per cent in utilities and the remainder in energy.

Its largest country exposure is Brazil at 33.77 per cent, where there is already a lot of building being done ahead of it hosting the Football World Cup in 2014 and Olympics in 2016. The fund's other main exposure is Hong Kong, which accounts for 26.95 per cent of the assets.

Source: iShares.

Performance data as at 4 November 2011.

Frontier markets: Advance Frontier Markets

Some of the strongest population growth is taking place in Africa, but many markets on this continent are so under-developed that they are included in frontier markets funds rather than emerging markets. Frontier markets are under-developed equity markets which index providers do not feel are sufficiently developed to include in emerging markets indices. However, they have better growth prospects than emerging markets.

Frontier markets are less efficient and more volatile than emerging markets, so it is probably better to have an active fund manager in this area to steer clear of high risks.

Advance Frontier Markets investment trust is managed by Advance Emerging Markets, a specialist in emerging and developing markets. Around 30 per cent of its assets are in Africa, including a number of sub-Saharan countries where population growth should be particularly strong.

The trust's NAV and share price has out performed its benchmark over periods of two years or more, and it trades at a discount to NAV of more than 10 per cent.

It is a fund of funds but has a reasonable TER of 1.57 per cent, in contrast to some funds of funds which have TERs in excess of 2 per cent. A fund of funds approach provides more diversity than one which just holds shares which can reduce risk. It also means that different parts of the portfolio are outsourced to experts on the ground - a useful feature in under-developed markets as there is greater need to understand the local operating environment and check up on the companies you are invested in. Some of the underlying funds also include exposure to private equity, accessing growth unavailable on listed markets.

Note that the trust levies a performance fee of 12 per cent of the amount by which the NAV exceeds its target. The downside of this is that performance fee may eat a little into outperformance, but on the positive side, it does ensure that management's interests are fully aligned with those of investors.

Source: Morningstar, *Advance Emerging Capital.

Performance data as at 7 November 2011.

Energy: Investec Global Energy

A rise in world population is increasing energy use at the same time as there is a limited supply of fossil fuels, which should create an increasing upward force on prices.

It is not possible to directly tap into the oil price because the ETFs which follow it buy futures contracts rather than oil itself, so when the price of oil is rising the ETF can make losses. Commodity prices can also be volatile, so a good option is a fund which buys shares in companies which produce oil and gas, though you take on company risk.

Oil company shares are influenced by a number of factors other than oil price, and not all the holdings are necessarily oil producers, so could still profit even if the oil price is not rising. Investec Global Energy fund invests in companies involved in the exploration and production of oil and gas, but also companies which distribute energy and service the energy industry. This fund can also get its exposure via derivatives, giving it an added source of return and further spreading risk.

The fund has not beaten its benchmark, MSCI World Energy, over one, three and five years. However, it has outperformed it since launch in line with its objective of long-term growth. It is also one of the better performing funds in the Investment Management Association (IMA)'s specialist sector.

The fund is managed by Mark Lacey and Jonathan Waghorn, who previously were energy analysts at investment bank Goldman Sachs. The fund also has a reasonable TER for an actively-managed fund of 1.61 per cent.

Source: Morningstar, *Investec.

Performance data as at 7 November 2011.

Healthcare: Worldwide Healthcare Trust

World population is growing not just because of more births, but also because people are living longer. An older population means more health problems, while improving standards of living in developing markets mean increasing numbers of people have access to healthcare.

Healthcare and pharmaceutical companies should benefit from this and funds focused on this area include Worldwide Healthcare Investment Trust which invests in pharmaceutical, biotechnology and related companies. It aims for a high level of capital growth and has a strong long-term performance record, with its NAV and share price beating its benchmark over three and five years.

The trust can currently be bought at a discount of around 10 per cent, wider than its 12-month average of -7.75 per cent. This has the potential to tighten because as well as good growth prospects, the trust's managers aim to keep the discount at not more than 6 per cent via share buybacks.

The trust has around two-thirds of its assets in large-cap pharmaceuticals, with the remainder in more speculative biotechnology companies, which could also make very high returns if they develop successful drugs. This trust is more defensive than some of its peers which are entirely focused on the latter, but it is still enjoying strong long-term growth because larger companies with a global reach should benefit from the ageing population and more people accessing healthcare. Two-thirds of the shares are listed in the US with a fifth in Europe, but these are global multi-nationals such as Roche, Novartis and Pfizer.

The trust is managed by US-based healthcare specialist fund manager, OrbiMed Capital. The fund managers have many years of experience and employ around 40 experienced analysts who carry out extensive research.

Source: Morningstar, *Frostrow Capital.

Performance data as at 7 November 2011.

Consumer spending: JPMorgan Global Consumer Trends

As developing nations get wealthier and people across the globe get older, it is likely that they will spend more on leisure activities and also what are considered to be basic items in developed countries, for example, personal care items such as toothpaste.

A fund looking to specifically tap into these trends is the JPM Global Consumer Trends Fund. While the title might sound like a bit of a marketing gimmick, this is essentially a global growth fund, and a very good one: it was the seventh best-performing global fund out of 170 over three years. It does not do so well over one year, but its aim is long-term growth via investing in what its manager, Peter Kirkman, describes as long-term durable trends.

The fund's investments focus on three areas: demographics and urbanisation, aspiration, and health and wellness, so is not just looking to growing population in emerging markets, but also growing wealth in emerging markets and ageing population in developed markets. Consequently, the fund's largest sector exposure is consumer discretionary which accounts for around 30 per cent of the assets, with healthcare just over 17 per cent and information technology around 13 per cent.

The companies it invests in are listed in a number of countries, dominated by the US and China which account for more than half of the assets. However, the companies in the portfolio have a global reach, so their country of listing is not so important. Examples of holdings include healthcare company Merck, technology company Apple and food company Nestle.

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Source: Morningstar, *JPMorgan.

Performance data as at 7 November 2011.