Investors have two responsibilities: to make money by taking risks and to fund economic activity and human endeavour. The way we live today, taking for granted many clever products and services, is only possible because someone, somewhere took a risk to invent them in the first place in the hope that lots of people would pay good money for them in the future.
Often they failed and the investment was lost. But the ones that worked changed our lives and benefited (nearly) everyone. Investors were rewarded handsomely.
With that in mind, it makes sense to think hard about where human demand will be greatest in the years ahead and avoid being invested in industries that are headed in the opposite direction. When a new or better product arrives, the biggest loser is the supplier of the obsolete product it has replaced.
This is where thematic investing comes in. It looks at societal, demographic and economic changes and chooses long-term investment solutions that should benefit from them. That way investors have their savings at the forefront of the major themes that will drive tomorrow’s world.
Entrepreneurs that took risks with products that worked changed our lives
There are several global themes to look out for when investing
The tech revolution is an important trend to invest in
These strategies go beyond fashionable short-term trends and are resilient to market cycles (consider the fact that we are living longer and how that is not going to go away regardless of what interest rates do). The challenge is to identify sources of growth that are long-term, tangible and meaningful to investors. A true theme is one that resonates with retail investors and institutional investors.
So what are some of the themes facing us all today?
The concept of ‘disruption’ was first theorised by Professor Clayton Christensen in the late 1990s. He saw it as an economic development in which an innovative product or service undermines the established order of a market. Think of IBM’s success in democratising the use of computers in the late 1970s. Or Racal’s (now Vodafone) development of cellular communications in the 1980s and 1990s. It became clear that no sector was immune from the fast pace of disruption and reinvention – be it the way we eat, live or how we do business.
An ageing world
By 2050, the world’s ‘silver generation’ (people aged 65 years and older) will outnumber children under 14 for the first time in human history. To put things in perspective, the US silver economy – economic activity serving the needs of Americans over the age of 50 – is worth $7.6tn (£5.7tn), making it the third largest economy in the world after the US and China, and larger than Britain, Japan, and India. In the past 18 years, companies whose business is exposed to the ageing population have achieved average revenue and earnings growth that has outperformed the global market. This trend is expected to gather strength.
This looks to capitalise on how the combination of the internet, network-capable mobile devices, data analytics, cloud computing and devices with deep learning capabilities are impacting sectors. The widespread rollout of robotics is already underway, with spending expected to reach $67bn (£50bn) a year by 2025.