Member Article

Tapping into the businesses of the future

Technology has a huge impact upon the way we live our lives. Whether it is luxury items like the Apple Watch, or the computers we use, technology is so ingrained into our everyday lives that it is difficult for many to imagine a life before such sophistication in technology was commonplace.

One way that it can be seen that technology has transformed the way we live is in the growth, development and manufacture of green cars. Sales of electric and other ‘green’ cars have soared as drivers take advantage of low tax and running costs.

A total of 9,046 new ultra low emission vehicles were registered in the first three months of 2015 – up five-fold from 1,789 in the first quarter of 2014, according to figures from the Department of Transport.

It explained the figures have been influenced by an increase in the vehicles eligible for plug-in car and van grants. Thus, the government is pushing these trends along.

This will have a gradual, knock-on effect in terms of the environment, with less exhaust fumes clogging up the air from petrol and diesel cars. There are four key drivers of change – termed megatrends – that are seen as major influencers on how the world will be shaped in the years ahead; demographics, the environment, technology and social behaviour.

To take the last theme, social behaviour influencing the world we live in and therefore the companies available to invest in. The Millennials, or those born between 1980 and 2000, are coming of age in terms of their prime working and spending years, but rather than spending their money on items such as luxury goods and cars, it is suggested that they are more savvy.

Growing up in a digital age, with price comparison tools at the ready, a “sharing” economy has evolved– internet-based marketplaces where people trade or swap services – which already turn over an estimated £500m per year.

Websites such as Uber, the taxi service, and Airbnb, where home owners rent to holidaymakers, are well known exponents of the trend. This “sharing economy” is expected to grow to £9bn in the next ten years, according to Pricewaterhouse Coopers, the accountancy firm.

The emergence of this trend results from the development of the internet as a marketplace and consumer behaviour validating this as such.

It is in this way that the interaction of megatrends with each other can be seen and consequently in the underlying themes that feed into these trends. To take green cars as an example, the interaction of the themes of environment and technology can be seen.

This was the thinking behind Lowes creation of the ‘Changing World’ portfolio, which invests in a number of sub-set themes around the above mega-trends. As an interaction of themes and megratrends is inevitable, the importance of spreading investments across a number of themes can be seen.

This reduces the risk of the portfolio, as should one or two themes hit a snag or not perform as well as expected, the others should compensate.

Ten themes within the portfolio are natural resources, premium brands, security, timber, water, agriculture, biotechnology, clean energy, digital communication and healthcare. Investing in these themes early on in their cycle gives investors the ability to capture as much of the upside, in terms of performance, as possible.

It is impossible for us to guess what the world will look like in 20, 50 or 100 years time, and it follows that the companies that will bring such changes into effect may be currently unknown to us.

Investing in thematic funds is a way of getting exposure to such businesses early on in their business cycle, identified using a fund manager’s expertise.

This was posted in Bdaily's Members' News section by Lowes Financial Management .