Beyond Blue Chips: Is Your Portfolio Prepared for Disruption?
May 11, 2022
3-5 minutes reading time
We are at the cusp of a technological revolution that will fundamentally alter the way we live, work, and relate to one another.
This “Fourth Industrial Revolution”, a term coined by the World Economic Forum, is characterized as the fusion of technologies that is blurring the boundaries between the physical, digital, and biological worlds.
This revolution is fuelled by the advances in many technologies and their collective force behind many products and services that are fast becoming indispensable to modern life. This perfect storm of technologies is paving the way for transformative changes in the way we live, radically disrupting many business sectors in the process.
Great change often comes with great disruption, and it also often comes with once-in-a-lifetime investment opportunities. The question is: how is your portfolio aligned?
Today, most of the investment industry relies on economic sector classifications established back in the 90’s. These “old world” sector classifications are often backwards looking and may not always accurately reflect the reality of how the world is changing.
For example, exponential technologies such as artificial intelligence (AI), blockchain, and cloud computing are each distinctive high-growth segments. Yet under traditional classification frameworks they are simply known as “Information Technology” companies. With the shift towards digitization and the extent to which technology is permeating all industries, how much does the label “IT” really reveal about a business?
Clearly the old taxonomies don’t do justice to future growth and value creation. By thinking forward, rather than backward, investors have an opportunity to modernize and align their portfolios with future growth.
But wait, aren’t I late to the party?
With all the buzz around new technologies these days, it can sure feel like one’s already missed the wave. Take blockchain for example - it seems like everyone and their neighbour are dabbling in cryptocurrencies and NFTs. The reality however, will surprise you.
As the chart below illustrates, actual mass adoption of new technologies tends to materialize well after the initial excitement has passed.
Often, the best time to get in on new technologies is after the initial hype has passed.
Introducing: OneVest’s Disruption & Innovation Portfolio
We start by identifying secular trends which span across economic, technological, and social landscapes. These are not short-term cyclical trends but rather long-term structural changes that we believe are unlikely to reverse.
At some point in our lifetime we’ve all had that “I wish I invested in X back then” moment - and many portfolios out there still tend to look towards past performance in search of the next big thing. We think instead, the key is a forward-looking approach to identifying these types of trends and diversifying across them, in order to best balance risk while maintaining exposure to high growth.
While traditional wealth managers often focus on the next quarter or the next year, our thematic investment thesis spans over the next decade.
Through extensive qualitative and quantitative research, we’ve identified 11 industries poised for high growth, and bundled them all into one single diversified portfolio:
- AI & Robotics involves the development of computer programs to automate human tasks and thought processes and has recently been coined as the second step beyond mechanization in the scope of industrialization. With the ability to reduce human errors and enhance efficiencies, companies across all industries are piling into the latest and greatest innovations within this sector.
- Cloud computing is set for massive growth as demand for online streaming platforms increases and organizations continue to embody flexible work practices. With enhanced cost savings, performance, efficiency and security tied to cloud hosted solutions, the forecast is heavy for user and capital investment growth.
- Cybersecurity is becoming increasingly important as global cyber threats doubled over the last year. As data is now arguably considered the world’s most valuable and vulnerable resource, maintaining its confidentiality and security is of utmost importance.
- eSports encapsulates the world of competitive organized gaming, which is already rivalling traditional physical sports in global viewership. In the United States, eSports is estimated to have more viewers than every professional sport (except the NFL) by the end of this year.
- E-commerce is revolutionizing the way we consume, fuelled by the use of technology to digitally transfer money and data to facilitate transactions. With already more than 1 in 4 users worldwide today, the rising middle class in emerging markets and increasing internet penetration in developed markets is set to exponentially bolster those numbers.
- FinTech aims to automate, democratize and improve the delivery and use of traditional financial services. With the rising popularity of digital payments, increased investments in technology-based solutions, supportive government regulations, and increased adoption of IOT devices, we see the potential for this innovation to completely disrupt the traditional financial sector.
- Blockchain is the foundational technology behind Web 3.0, digital assets such as cryptocurrencies and non-fungible tokens (NFTs), as well as the emerging network of 3D virtual worlds known as the metaverse. Decentralized public ledgers increase trust, security, transparency, and the traceability of data shared across a network - resulting in the flurry of new and exciting applications in our everyday lives.
- Future Mobility is paving the way for more convenient, personalized, safer, and environmentally-friendly travel. Multiple catalysts for growth and mass adoption in this sector include increase in charging infrastructure, fiscal incentives, environmental policies, and reduction of battery cost.
- Digital Health is growing immensely, with COVID-19 shining a light on nationwide healthcare capacity issues. As a result, heightened patient and investor interest in remote solutions has grown exponentially and is projected to continuously grow as we try and mitigate the risks associated with in-person examinations and tests.
- Bioengineering, Genomics & Immunology is seeing massive tailwinds from COVID-19 as it has highlighted bottlenecks in vaccine readiness and efficient processes for combating future viruses and diseases. As a result, this sector is expected to see huge capital inflows from government initiatives as well as the investor community.
- 5G wireless technology provides speeds up to 100x faster than its predecessor, enabling a new kind of network that connects virtually everyone and everything. As enterprises seek greater connectivity and internet adoption rates expand internationally, mass adoption from both consumers and businesses are expected.
By investing across all of these sectors, the OneVest Disruption & Innovation Portfolio reflects on average 4x greater forward revenue growth compared to the overall stock market.
While high-growth technology companies can often be volatile, our diversified portfolio construction ensures you’re not overly concentrated in any single company or industry. What’s more, the utilization of innovative alternative investment strategies allows investors with different risk profiles to benefit from these thematic opportunities.
Unlike traditional portfolios, you won’t find plain vanilla stock and bond strategies here, and, you might just avoid saying “I wish I had invested in X” 10 years from now.
Interested in offering unique portfolio solutions centered around disruptive technologies or alternative investments to your customers? We can build it. Get started with OneVest today!