Emerging technologies — artificial intelligence, robotics, 5G, autonomous vehicles, and advanced genomics — truly have the potential to disrupt the status quo. They can transform life, business, and the global economy and even alter the way people think and work. Technological progress improves the lives of many, but only at the expense of a smaller few — investors!
Why do investors fear technological disruption? Why is it the biggest forward-facing risk for all investors?
“We don’t see investors fearing technological disruption – rather the prevailing feeling among the investment community is excitement and optimism towards disruptive trends,” said Andrew Little, a research analyst at Global X, an American subsidiary of Seoul-based Mirae Asset Financial Group, with a mission of empowering clients to invest wisely in unexplored and intelligent solutions.
Andrew Little was responding to a set of questions sent by RoboticsBiz via email regarding the investment trends in the US and Global X’s priorities in 2020, when it comes to investing in robotics and AI. Andrew covers the thematic investment areas behind Global X’s Thematic Growth ETF suite and produces timely insights, investment rationale, and intellectual capital to support the firm’s research effort.
Continue reading Andrew’s response to our first question, below:
After a decade-long bull run with strong returns in the US, investors are concerned that a potential shift to a slow growth or recessionary environment could hinder returns in the new decade. Therefore, opportunities to invest in disruptive themes that have high growth potential, and the ability to grow with less sensitivity to the macro environment have strong appeal.
Despite this optimism, however, we often see exposure to disruptive companies representing just limited portions of growth-oriented portfolios. Perhaps investors should be more concerned that many of the core exposures in their portfolios are to companies and industries that have been winners in the past, but may not be the winners in the future – that today’s sector leaders are not necessarily those that will continue to win in the future should disruption prevail across the economy. Emerging technologies are disrupting the status quo and establishing new paradigms across many sectors.
For example, IT ecosystems used to revolve around local computers and servers, but declining chip costs and the ability to connect virtually anything to the internet is re-centering the sector around the internet of things and cloud-based activities. Health care used to be about treating symptoms and ailments once they occurred, but connected devices and the rise of genomics and biotech are garnering in an era of preventative and personalized medicine. Therefore companies that were poised for success in the desktop and local server era or the responsive medicine era are facing headwinds unless they can evolve at the pace of technology.
Investors should recognize that these structural changes are taking place, evaluate their portfolio’s exposure to these disruptive trends, and consider whether increasing exposure to next-generation companies makes sense.
Tech is changing everything, and it’s hard to pick a single transformative technology or company for the investors to put their money without any fear of losing all of it. How does Global X help its clients invest wisely in unexplored and intelligent solutions?
At Global X, we have been providing thematic ETFs for ten years since the launch of our Lithium & Battery Tech ETF (LIT) in 2010. Since then, we have launched 18 thematic ETFs, providing exposure to a broad range of powerful disruptive trends. But not every theme we come across is launched as an ETF. We follow a strict three-step process to determine which themes make it: 1) Conviction. Does our research show that a particular theme is likely to disrupt broad areas of the economy; 2) Investability. Are there 20+ publicly traded companies that provide good exposure to the theme we are targeting. This helps provide both diversification to the theme as well as uphold the purity of the exposures; 3) Time Horizon. Is the theme expected to play out in years or decades? Our preference is for longer-term themes since it removes some of the importance of timing for investors. By following this three-step process, we believe we are offering well-designed exposure to a curated list of powerful themes, all within the efficient structure of an ETF.
There is more money than good ideas today! Is too much money for too little ideas a big problem? What are the perverse effects it has in the tech world? How do we handle this?
Exciting tech developments hit the airwaves every day, and it can seem very enticing from an investment standpoint. But as investors, we like to observe the emergence of new technology and thematic areas through an unbiased lens. Market forces are largely very efficient at allocating capital to areas of promise and devaluing areas that may not be quite ready or feasible. We believe the influx of capital to areas like robotics, the internet of things, and autonomous vehicles, are reflective of the disruptive potential these trends hold and investors’ high expectations for their long term profitability. This does not mean that all investments or themes will entirely work out, but the investor interest reflects the information and analysis available to the market at this given moment – and the information and analysis are painting a compelling picture for many of these themes.
Tell us about the technological breakthroughs that investors shouldn’t miss in 2020. And why!
While there was a bit of overzealousness in 2019, we believe 2020 is the year of 5G. 5G networks will be rolled out across the world en-masse and have far-reaching implications for a number of disruptive technologies like the internet of things and autonomous vehicles. Up to 100x, more devices can connect to 5G networks than 4G ones, which is advantageous in a world where everything is going to be connected. With 10x less latency than 4G, 5G also means that devices can send and receive data almost instantaneously, which can be especially critical for certain use cases like autonomous vehicles and medical care. In the coming years, hundreds of thousands of 5G towers will be deployed across the world, covering up to 65% of the global population by 2025. Further, some projections have 5G devices accounting for 12% of all mobile shipments in 2020, with this number rising to 43% by 2022.
We also expect to see further widespread adoption of cloud-based software, platforms, and infrastructure. Forbes recently noted that 60% of IT infrastructure spending and 60-70% of software and other tech spending is expected to be cloud-based in 2020. Video Games and Esports also stand out because it is a consumer-driven theme that should benefit from strong consumer tailwinds as well as the rise of the millennial and gen Z generations, which enjoy digital experiences. There is also going to be a major upgrade cycle in 2020 as new consoles are released, and streaming platforms like Google Stadia, Microsoft’s X Cloud, Apple’s Arcade challenge existing business models.