It has become something of a cliché, but technology really is changing the way we live and work. On buses and trains, for example, half of the passengers are likely glued to smartphones or tablets
Technological developments are certainly not confined to telecommunications; in fact, new technologies are increasingly prompting change in a very wide range of industries globally. And, in some cases, technological advances are creating entire new industries that would not have been feasible 30 years ago.
These developments are interesting from an investment perspective. In the current uncertain environment, ‘future-proofing' also involves looking carefully at emerging long-term trends. "The risk on appetite also means people are diversifying their portfolio to include thematic investing, where returns can be captured through exposure to assets linked to long-term structural trends" says Howie Li, CEO, Canvas, ETF Securities. So what are the key megatrends of 2018?
Robotics and automation
Technological advancements are enabling robots to perform increasingly sophisticated knowledge-based work, thereby widening their application. As human labour costs increase and production costs for robots fall, it is hardly surprising that automated systems are rapidly transforming a wide range of industries.
Advances in artificial intelligence (AI) and sensor development, for example, mean that robots are acquiring a broader range of skills, diagnosing diseases; driving cars; and understanding natural language. Seeking to improve productivity - reducing production costs and, in turn, improving profitability - businesses are increasingly adopting robotics and automation systems and are investing heavily in new technologies. This augurs well for innovative companies engaged in this evolving megatrend.
With the number of connected devices expected to exceed 200 billion by 2020, the world is becoming ever more inter-connected electronically. As governments, corporations and individuals collect, process and store vast amounts of confidential information on integrated cloud systems, cyber security has never been more important in order to protect data from theft and fraud.
To safeguard against sophisticated hackers, corporations and governments are expected to increase their investment in cybersecurity systems to more than $101.6 billion by 2020. This not only helps to protect the financial interests of themselves and their clients, but importantly mitigates the risk of reputational damage associated with data security breaches.
The proliferation of portable devices globally, the continued developments in sustainable energy as well as increasing demand for electric vehicles mean demand for batteries continues to gather pace. Additionally, dwindling fossil fuel reserves means there is an increasing focus on grid storage; in particular storing power generated from renewable sources. This rising demand is supporting companies engaged in battery research and production, as well as miners of lithium; a raw material used in the manufacture of the most efficient batteries. Demand for the metal is forecast to grow between 15% and 20% annually over the next decade as battery production accelerates further.
Annual online retail sales growth now exceeds 10% in most markets, even in developed eCommerce markets such as the US, UK and Germany. Additionally, increasing internet penetration in emerging regions with high populations should further fuel the global eCommerce market. As eCommerce companies expand their range of offerings, sophisticated logistics solutions will become even more important for retailers. At this moment in time, the logistics sector is playing catch-up in response to the strong growth in eCommerce that we have already witnessed.
Given their limited revenue potential, major global pharmaceutical firms have historically had limited interest in developing treatments for rare diseases. However, incentives including tax credits, grants, increased intellectual property protection and reduced timelines for clinical development mean more companies are deploying research and development spend into this area. In fact, revenues from such drugs, commonly known as "orphan drugs", are expected to increase 11.0% annually between 2017 and 2022, providing investors with an opportunity to gain exposure to this new segment within the established pharmaceutical industry.
What are the challenges with investing in emerging megatrends?
Defining which companies are true leaders in these megatrends can be difficult given the complex supply chains that mark out each sector and the fact that these are relatively new and unique industries.
Some companies may derive some or a substantial portion of its revenues from business segments that may be unrelated to each specific megatrend. Consequently, such companies shall also be subject to risks that are associated with other business segments.
To be able to identify and invest in these key businesses requires expert insight and analysis to fully understand the key drivers of each industry. This is essential when making investment decisions but it is particularly the case for a sector that is unlike any other in the investment sphere.
For more information, please visit etfsecurities.com/futurepresent
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