BlackRock, the largest asset manager in the world, sees five mega-trends that have the potential to make or break future portfolios.

In it's midyear report, the firm says investors should be paying attention to technology, geopolitics, population growth, and the financial sector. 

Like the rest of Wall Street, top of mind for BlackRock is artificial intelligence. 

In upgrading its outlook for the sector, it cited the huge frenzy of enthusiasm around the budding technology. The company now has an overweight rating for the AI space, given the potential boost it can offer to productivity, profit margins, and cost savings. 

While the firm is optimistic that the AI will fuel the valuations for makers of micro chips — the hardware through which AI functions — BlackRock thinks companies that hold data that train AI are underappreciated winners.

"Companies with vast sets of proprietary data have the ability to more quickly and easily leverage a large amount of data to create innovative models," the report said. "New AI tools could analyze and unlock the value of the data gold mine some companies may be sitting on."  

Concerning new innovation, investors should also prepare for the transition to low-carbon economies, BlackRock wrote. Expecting the shift to occur more quickly in developed nations, the seismic reworking of energy systems should give investors an opportunity to get ahead. 

As an example, the report cited the surge in electric vehicle pricing, which has benefited from the emphasis on low-carbon solutions. However, timing these large changes will require investors to make assumptions on the future policy, technology, and consumer preferences.

The management firm has dimmer outlooks for the future of the international order, and investors should prepare for further world fragmentation. No longer will economic efficiency govern geopolitical relations, as national security and resilience take priority.

While US-China tensions spur protectionist policies, BlackRock expects investments in infrastructure and robotics to grow. Meanwhile, the possibility of future confrontations among other rising powers could mean growth in defense, aerospace, and cybersecurity sectors. 

The world's aging population is another troubling mega-trend. As the future labor force shrinks for a number of markets, this has implications on productivity, growth, and government spending.

BlackRock sees this as an inflationary boost, given that retired populations will maintain spending levels, despite lower levels of productivity.

The firm's report also projected a permanent reworking of the financial sector, highlighting that changes caused by the banking turmoil earlier this year may only accelerate. 

For instance, investors can expect further consolidation of smaller institutions, while credit availability tightens. This will help expand the role of non-bank lenders and private markets within the sector.

Overall, BlackRock remains underweight on US equities, expecting some form of macroeconomic damage to come. However, it highlights short-term government bonds, as elevated interest rates continue to support higher yields.