Now, more than ever, we see innovation as the main driving force behind value creation in the global economy. As growth-oriented investors, we believe one must invest in innovation across industries to have the potential to outperform the market.
A Period of Unprecedented Innovation
In our view, we are in the middle of a period of unprecedented innovation where many ideas are evolving at the same time and are being adopted faster than initially anticipated. It reminds us of a period in the late 1800s. Back then, the harnessing of electricity and the invention of the telephone and internal combustible engine spurred growth across industries.
These days, we are particularly excited about the prospects for five technologically enabled themes that are starting to disrupt five different industries:
- robotics (industrials)
- genome sequencing (health care)
- energy storage (energy)
- next-generation internet1 (technology) and
- blockchain and virtual currencies/payments (finance).
Investing for the Future
Some of the themes listed above, like robotics, are currently investable. Robotics are changing the role of the human workforce to improve productivity and minimize production costs on the factory floor.
That said, we don’t think some of the other themes, including genome sequencing and blockchain, are worth investing in—at least not yet.
Genome sequencing could change the world. This process involves decoding a patient’s DNA to identify specific genes that, in turn, might serve to influence which drugs would be most effective to treat illnesses such as cancer. However, based on our analysis, none of the publicly traded gene-editing companies have yet to show a sustainable stream of revenue or are close to an approved drug.
We are also waiting to see how blockchain (a decentralized, digital ledger) evolves. We don’t currently see any attractive opportunities to invest in blockchain or the virtual currencies, such as bitcoin, that use the technology. However, we believe that’s likely to change in the coming years. In our view, blockchain could be used by title insurance companies or securities exchanges to reduce the time needed to transfer mortgage titles or settle trades, respectively.
The Case for Active Management
In summary, we believe it is a ripe time to invest in innovation. We are encouraged by the new technology-driven themes we see across many industries.
However, we see these themes evolving at different paces and becoming investable at different times. That’s why we think active management can really prove its worth—guiding investors into these themes when they intersect well with a good investment. In particular, we look for select investments in companies in industries where the penetration rates are low, and the market structure and prospects for monetization are good.
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What Are the Risks?
All investments involve risks, including possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested. Investments in fast-growing industries, including the technology and health care sectors (which have historically been volatile) could result in increased price fluctuation, especially over the short term, due to the rapid pace of product change and development and changes in government regulation of companies emphasizing scientific or technological advancement or regulatory approval for new drugs and medical instruments. Small- and mid-capitalisation companies can be particularly sensitive to changing economic conditions, and their prospects for growth are less certain than those of larger, more established companies.
1. Next-generation internet technologies include artificial intelligence, 5G, and virtual and augmented reality.