• Ideas

Investment Themes with the Potential for Exponential Growth

At Morgan Stanley’s recent Australia Summit, we spoke to two well-known advocates for investing in disruptive innovation and asked them what investors should keep in mind when building these themes into their portfolios.

Catherine Wood

Chief Executive Officer & Chief Investment Officer
ARK Investment Management

Key concepts

  • The platforms that will drive innovation – electric vehicles, autonomous vehicles, DNA sequencing, collaborative robots – are only just hitting their inflection point. They’re just getting started.
  • Cost declines are reaching a point where there is going to be more and more demand for these technologies. Technologically-enabled deflation is going to cause enormous bursts of demand.
  • The market doesn’t properly understand the exponential growth that these industries and companies are capable of and how much of it is still ahead of them.
  • Investing in these big ideas delivers a level of diversification since many of them cut across economic and industry sectors.

Potential for exponential growth

  • Cryptocurrencies are an entirely new asset class and the first new asset class since the 1600s. Bitcoin is the de facto reserve cryptocurrency.
  • The genomic revolution could save half of all healthcare dollars. It’s early in its development and even earlier in its adoption by investors because markets need to better understand that it could cure disease.
  • Autonomous taxi networks have likewise been under-appreciated by analysts who may not see the true value of the network effects.

 

Scott Helfstein

Global Co-Head of Market Research and Strategy and Head of Thematic Portfolios
Morgan Stanley

Key concepts

  • Many exciting and revolutionary technologies are at an early inflection point.
  • There is potential for the global economy to save $15-16 trillion from technologies associated with the fourth industrial revolution – automation, collaborative robots, and cognitive technology. That would double S&P500 profit margins over the next 20 years. There are potential savings of $60 billion from personalised medicine alone. These are huge trends and investors are only beginning to comprehend the benefits.
  • When looking at revolutionary technology, it’s important to avoid succumbing to a large company bias. It’s important to broaden your aperture because the household names typically associated with technology and innovation may not always be the leaders of these changes.
  • It’s important to be disciplined with the logic around each of the big themes you’re incorporating into your portfolio. When building in diversification, it’s vital that you don’t lose the purity of the theme you’re pursuing.

Potential for exponential growth

  • The fourth industrial revolution – robotics and cognitive technology – could be transformative. There are unfavourable demographics all over the world which are likely to create worker shortages.
  • The drastic decline in the cost of DNA sequencing may lead to dramatic changes that are only beginning to be understood by investment markets.
  • Leisure time has grown consistently for decades and is expected to increase. Industries that monetise that time – media, travel, fitness, gaming – could benefit.

For advice on how to harness the exponential growth potential of these investment themes, speak to your Morgan Stanley financial adviser.