Scott Helfstein, Global Co-Head of Market Research and Strategy and Head of Thematic Portfolios, spoke at our recent Australia Summit and outlined how he approaches thematic investing from a wealth management perspective. He identified eight key themes which he believes have enormous disruptive potential and therefore present compelling investment opportunities.
Numbers from the US Census Bureau suggest there will be a shortfall of 18 million workers in the US by 2050. The demographics are clear. The US is on track for 22% population growth but only 14% growth in the working age population. A larger population which wants to maintain consumption levels but has fewer workers creates a worker shortage. More importantly, Japan, Europe and China are faced with the same demographic issue. Satisfying this shortfall presents an enormous opportunity for artificial intelligence and robotics.
The World Bank estimates that 80% of emerging market growth is historically driven by manufacturing. Right now, in the global manufacturing sector, there is one robot for every 50 people but for every three new people being added, one new robot is being added. As technology replaces labor in emerging markets, countries will need to turn from manufacturing to consumption to continue growth. Countries that are investing in their population are more likely to have the higher skilled labor needed to drive consumption in this new paradigm.
Just a single autonomous vehicle generates 1.6 million gigabytes of data each year. We are not well-placed to handle this capacity. Significant infrastructure will be required and challenging social and policy issues also need to be solved. In the short term this will slow the rollout and take-up of autonomous passenger transport. Freight transport is not affected by these issues and the opportunity for autonomy in freight is significant. The US is on track for a shortage of 174,000 truck drivers as demand for freight transport continues to increase due to trends in online retail.
286 million years of additional leisure time will be created globally by 2030. Since 1970, the average growth in leisure time has been very stable at around 4.8 hours per year. Whether that time is spent consuming media, travelling, dining or engaging in hobbies, there is money to be made from every one of those hours and corresponding investment opportunities.
The cost of DNA sequencing is declining by 51% each year. As it becomes more economical to sequence a person’s DNA, the opportunities in healthcare grow exponentially. Personalised medicine becomes possible as drugs can be targeted more accurately at those who need them. In addition, side-effects can be more reliably identified and avoided, allowing more drugs to make it to market.
Since 2015, the rate of cyber-attacks has increased 22x. We’ve all digitised our lives; businesses have digitised their operations and yet, it’s a vulnerable landscape. Globally, nearly 300 billion dollars was spent on cyber security in 2017 and that is on track to grow in the next five years. Delivering the required security solutions will become incredibly valuable.
Total global infrastructure demand is expected to reach $3.8 trillion in 2040. To deliver that number, some regions will need to increase their infrastructure spending. The US is chronically underinvested, with near 0% annual growth in infrastructure spending from 2007-2015. The US would need to increase infrastructure spending to at least 2% annually to meet the demand from demographics and economic growth. Europe‘s position is worse due to austerity budgets, and they would need to reverse course from negative infrastructure spending growth to meet the same 2% growth need.
Intangibles now make up 67% of book value per share – the highest it has ever been. The things that are hard to value – intellectual property, brands, reputation – now account for more of company value than at any time in history. A big driver of this is technological deflation, the gradual decrease in costs of goods thanks to technological advancement. With this in mind, the industries and companies that are able to use market structure, strong brands and IP to keep their prices high in a time of technological deflation provide compelling investment opportunities.
These trends are transformational. Although the transitions will take time, taking the right positions in the value chain early has the potential to drive significant returns. Speak to your Morgan Stanley financial adviser about how to position your portfolio to take advantage of these thematic ideas.