Perspective

Innovative transformation cuts across “old” and “new” economy companies

The interaction of human ingenuity, innovation and the tackling of imbalances creates investment themes. These can be pervasive and compelling, such as digitalisation, climate change, energy transition and healthcare transformation. 

Chloe Shea, Associate Investment Director, Multi-Asset, said: “Thematic investing could provide investors with extensive exposure on the breadth of investment opportunities over the medium to long run. Simply put, thematic investing analyses economic structures, cycles and trends, and invests in the relevant industries or companies that stand to benefit from these structural shifts. Categorising these opportunities by themes enables us to think more holistically about the knock-on effects of each shift.”

Eye on opportunities from innovative transformation

Technology has helped the society navigate through pandemic lockdowns as people explored the use of different applications that could bring back some semblance of normalcy to their lives. This has created enormous demand for faster and more stable network connectivity, which further incubated more innovative technology applications.

“Following the upgrade of mobile communication technology from 4G to 5G, changes are gradually becoming apparent in our daily lives.  This technological enhancement will further expedite the development and innovation of Internet of Things (IoT), and further builds a new ecosystem upon 5G technology, which provides growth momentum to multiple sectors going forward. For instance, artificial intelligence, cloud computing, online healthcare and, smart cities are some areas that are poised to benefit from this phenomenon,” Shea said.

According to market estimates, 5G related revenues will rise from less than US$100 billion in 2021 to a staggering US$720 billion by 20231, which is equivalent to a growth of over seven times.

Thematic investments related to 5G can cover a wide range of industries, including mobile devices and telecommunications equipment manufacturers, network service providers, semiconductor producers, photolithography machines manufacturers, data centres and even healthcare providers.

Technological advancement benefits “old” economy sectors too

While “new economy” companies have been a focal point in thematic investing, investors should not neglect that “old economy” companies could play an integral role as well.

“The increasing use of 5G technology is actually benefiting some old economy names. For instance, all 5G applications need to securely transmit and store their data, and some real estate companies including Real Estate Investment Trusts that own or operate data centres, which are typically considered as old economy sectors, are also reaping the benefits. Therefore, investors need to dig beneath the surface to discover some of the less obvious opportunities,” Shea added.

While thematic investing is not limited by regions or sectors, it is still investing in individual companies that could be impacted by idiosyncratic factors and cycles.  Schroders believes that using a global multi-asset approach to thematic investing can help investors in navigating different stages of a cycle.  

“A buy-and-hold approach is not enough. We want to ensure that a thematic portfolio can withstand different challenges in diverse market environments, and we achieve this by adopting an active and flexible approach in asset allocation.  Equities play an integral role in seeking potential capital returns, while bonds provide the stability and risk management attributes to the overall portfolio,” Shea said.


1 Source: Delta Partners Analytics, European Commission, IDTechEx Research – 5G Technology, Market and Forecasts 2019-2029.

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