Megatrends: Technological breakthrough

New technologies lie at the heart of resolving or accelerating the five megatrends. Breakthrough innovation is necessary to address large-scale challenges (e.g. ageing economies, climate change), while new solutions are also targeting relatively minor problems (e.g. payments, streaming). This backdrop has created a fertile ground for disruptive innovation and Thematic investing.

Learn more about the megatrends shaping our future of economies, business and society.

Capital at risk. The value of investments and the income from them can fall as well as rise and is not guaranteed. You may not get back the amount originally invested.

Where do we expect innovation?

Consider the advent of electric vehicles, e-commerce, solar panels, robotics, cloud computing, streaming, smart grids and many other modern-day innovations. In each case, engineers and entrepreneurs are aiming to capitalize on the need for either a new solution or a better alternative in existing markets.

We believe disruptive innovation is most likely to emerge in two scenarios:

1. New solutions

A new and unique solution is developed to resolve a significant constraint or challenge.

2. Better alternatives

New competitors are attracted to industries with large profit pools and high returns, developing better alternatives in existing markets.

The future is getting here. Faster.

Breakthrough innovations have become more powerful in recent years thanks to globalisation and the ubiquity of technology. Together, they have lowered entry barriers for new competitors and accelerated the adoption of new technologies around the world, thereby unleashing a wave of disruptive opportunities across industries and economies. As such, technological growth has become exponential.

This year,
over half
of the world’s population is expected to have access to the internet for the first time.

Source: International Telecommunication Union, Dec 2018.

What are the investment opportunities?

Firstly, we seek areas of the economy that provide the right conditions for breakthrough technologies – spending on research and innovation, supportive regulation, shifts in consumer demand and societal challenges that need to be resolved. We then aim to identify innovative companies with superior solutions that can boost long term growth. The flipside of innovation is disruption - we remain wary of industry incumbents with legacy products that face new competitive threats.

It is important here to assess the lifecycle of new technologies – to avoid hype and invest in reality, and to understand the bottlenecks for new tech adoption. In turn, we highlight firms that enable new technologies – e.g. lithium miners that power electric vehicle batteries or semiconductors firms which connect smart homes. Similarly, we also seek to invest in those that provide the infrastructure necessary for new technologies (e.g. 5G networks, smart grids).

Investing in technological breakthrough with BlackRock & iShares

Our range of thematic funds offer a way for investors to tap into megatrends, which we believe gives investors exposure to companies with structurally higher earnings growth, which in-turn could drive stronger investment returns over the longer term.