Our world is undergoing a radical transformation. The ways we communicate, travel, conduct business, receive health care and generate energy are changing at lightning speed. A combination of forces, including accelerating connectivity, computing power, sensor proliferation and artificial intelligence, is helping drive innovation. Within the economy, this is creating both risks for established corporate players and opportunities for forward-looking competitors. At the investment level, we see a number of major thematic trends that could create attractive opportunities in the years to come.
“We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next 10.” — Bill Gates
Pace of Technology Adoption Has AcceleratedNumber of Years From Commercialization to 25% Adoption by U.S. Population
Source: “Happy Birthday World Wide Web,” The Economist, March 2014. Year in parentheses indicates when first commercially available.
The $4.2 trillion global transportation industry is poised for disruption. Key historical issues, including poor safety, emissions/pollution and inefficiency, are being addressed via the technology-based solutions of autonomous driving, electrification and connectivity. Advances are taking place at a rapid pace, and adoption over the next 10 years is likely to be faster and more pervasive than many realize. We see long-term opportunity in companies that are enablers or stand to benefit from these trends.
“The auto industry is changing faster today than it has in 100 years…[and] will change more in the next five to 10 years than it has in the last 50.” — Mary Barra, Chairman and CEO, General Motors
Despite the potential of self-driving cars, we believe investors do not have to depend on the lofty goal of full automation. Multiple technologies are needed to make automobiles smarter and more efficient, including autonomous emergency braking, radar for adaptive cruise control, traffic jam assist for driving in congestion, blind spot monitoring, and “lane keep” assist, among many others. We see potential in companies that can supply these elements to car makers, and more broadly in companies that are well positioned in light of the automation trend.
Automated Driving Technologies
Source: SAE International.
Next-Generation Connectivity (5G)
The “5G” generation of wireless infrastructure is poised to enable a new wave of applications across entertainment, transportation and industry that could transform the way we live and work. The larger bandwidth provided by 5G will support the “internet of things,” enhancing connectivity across multiple devices, home electronics, wearable devices, sensors and more; and creating new approaches to education, health care, security and safety, and manufacturing. Focusing on the enablers and beneficiaries of this trend, we see opportunity across network infrastructure, devices and applications and services.
“This is the beginning of the fourth generation of the industrial revolution.” — Kaan Terzioğlu, CEO, Turkcell
Evolution of 5G
“Fintech” is the digitization of financial services, which is transforming a range of traditional financial services, including payments, transactions, insurance, consumer lending and wealth management, while facilitating the trend of cryptocurrencies. At this stage, internet penetration in financial business models is quite limited versus other industries, but we believe that is poised to change. In a massive global market for financial services, we see potential in segments including payments and ecommerce, data and analytics, and among adopters that can capitalize on the new tools to build market share.
“There’s going to be more change in the next five years in financial services than happened in the past 30.” — Dan Schulman, CEO, PayPal
Building an Approach
The themes above are pervasive, with impacts across borders, industries and infrastructures. To assess them from an investment perspective requires resources and expertise within multiple disciplines. Fundamental research must explore risk factors, not only affecting innovators, but also existing players that may or may not be well positioned to capitalize on systemic change. In our view, the effort and focus could be well worth it, to get ahead of these trends and uncover investment opportunities.