The current market pullback gives long-term investors a compelling entry point into innovative businesses reshaping the global economy and our lives.
The past month brought an abrupt change in expectations about economic growth as efforts to contain COVID-19 curtailed economic activity across the globe. The markets have responded, and now equities, credit and rates are all pricing in a high probability of a recession.
Growth will be harder to come by this quarter and likely the next. But some types of demand may be less affected and more resilient than those in such cyclical sectors as industrials, energy, materials and consumer discretionary.
Indeed, we expect that secular demand tied to major, long-term “megatrends”—multi-year economic trends that will fundamentally change the world in the coming decade—may be strengthened by the experience of the COVID-19 outbreak.
Three of the megatrends we expect to be most promising for investors, especially now, are:
- Digital transformation
- Healthcare innovation
Of course, the key is to separate the visionary from the real opportunities. Here, we share with you some of the thinking behind our selection of these megatrends. In the coming months, we will offer close-ups of these sectors—and more.
The COVID-19 pandemic demonstrates how crucial artificial intelligence can be to managing and containing an epidemic. In China, the use of AI helped send early alerts about outbreaks, identify individuals who traveled in close proximity to the infected, and deliver groceries to the quarantined. More broadly, AI can help with disease detection and prevention, mass population outreach at critical times, diagnostics, treatment, drug discovery, infection control and much more.
Of course, accelerating advances in technology have been with us for decades, transformed our lives and created enormous economic opportunities. None of that is going to change. The only questions are: Where else will the next advances cluster and how do we find solid opportunities?
The biggest trend in tech today (and for the next five years) is actually in the growth in data. Roughly 80% of our current datasphere was created in the last six years. More striking is that the size of the datasphere is expected to quadruple over the next five years.1
All of this data will need to be collected and stored, connected, processed, analyzed and protected. As a result there will be significant investment opportunities in cloud computing, 5G, artificial intelligence, cybersecurity and more.
Two opportunities in particular stand out today: 5G and artificial intelligence. AI alone is expected to add $15.7 trillion to the global economy by 2030; that’s more than the size of China’s GDP today.
Global datasphere is expected to quadruple by 2025
The reason why the opportunity for AI is so immense is that, while data proliferates, only 1% of our datasphere is currently analyzed and AI will play a key role analyzing the remaining 99%. For example, it usually takes a doctor 5 to 15 minutes to analyze the CAT scan of a single suspected COVID-19 patient to come up with a clinical diagnosis. Alibaba claims its new algorithm can complete the recognition process within 20 seconds. Read more on the importance of AI here.
The COVID-19 pandemic spotlights existing strains on healthcare systems around the world. The capacity of our health systems already were stretched, with doctor wait times too long, emergency room visits too costly, and drug development taking too long.
On top of these challenges is the fact that healthcare in the United States costs too much,2 with heart disease, cancer and diabetes the top contributors to healthcare costs.3 At the same time, rare diseases affect over 25 million in the United States and 400 million worldwide. About half of all rare diseases affect children.4
The good news is that scientists, technologists and biotech companies are collaborating and innovating to address—even potentially solve—these long-standing challenges. And the combination of two technologies – AI and gene-therapy – is leading to some breakthrough results. For example, AI is being used in the search for new treatments as it is applied to complex biological data sets like bacteria and viruses. This is proving exceptionally helpful during the current COVID-19 pandemic.
For example: Baidu Inc., a Chinese multinational technology company, said it was making its AI algorithm, which it claims can analyze the genome secondary structure of the new coronavirus within just 27 seconds, available for free to gene-testing institutions, epidemic-prevention centers and scientific-research centers around the world.
Elsewhere, many are searching for gene therapy that would replace expensive lifelong treatment plans with one-time treatments that address the root cause of a disease, such as sickle cell, hemophilia, genetic blindness and more. Read more about gene therapy here.
The combination of healthcare data and gene-based technologies is experiencing accelerating innovation and creating compelling opportunities.
The recent drop in oil prices exacerbated market anxieties. Clearly, moving to a more sustainable technology like electric vehicles can help alleviate the concerns around oil and geopolitical shocks that are sometimes beyond our control.
Even before this latest news, though, it was clear that sustainability would be center stage for this decade, as the world’s governments and companies seek to move toward the UN 2030 Sustainable Development Goals.
Economic conferences, media reports and even many annual reports are talking about “sustainability.” Since January, companies such as Microsoft, Delta and BP have announced carbon neutral or negative targets. At the World Economic Forum in Davos, Switzerland, environmental risks dominated the top five risks facing the world—for the first time since the start of the report in 2007. Investors’ requests for sustainable investments have picked up notably.
But what exactly is sustainability? And how might you invest in it?
Typically, sustainability is defined as the ability to reduce or eliminate the depletion of natural resources in order to limit the negative impact on the environment from overuse, pollution and waste.
We take it a step further to say: Sustainability is about ensuring we make the most efficient and least damaging use of earth’s resources so we can satisfy the basic human needs of our entire world’s population.
What resources are essential to daily existence? The answer has to start with: food, water and clean air. Very quickly, it becomes clear how investors might participate in the worldwide effort to satisfy these needs. Take food as one example.
We know there is an intense need: Consider that over 800 million people around the world today are undernourished and that an estimated total of 2 billion people experience moderate or severe food insecurity.5
At the same time, there is significant waste: One-third of food intended for human consumption ends up in the garbage.
That means there is opportunity as we seek to patch gaps between supply and demand—and even remedy the basic shortage. We can be more efficient with our food delivery, supply chains and production systems. Already, Agtech and Foodtech companies are hard at work.
Of course, beyond food, water and clean air, sustainability also means addressing climate change, plastic waste dumping, overfilling of landfills, land erosion and overfishing, to name a few areas of concern. The good news is that the world is focused on addressing these challenges.
Carbon dioxide emission targets
Identifying real opportunities
The world today is united in addressing the challenges of the day: Containing COVID-19, helping those who suffer its ill effects and finding a cure. Meanwhile, investors will be looking to make sure that their portfolios and financial futures remain secure.
We are committed to helping you find investments that make sense. The current market pullback gives long-term investors a compelling entry point into these here-to-stay megatrends. But, as important as it is to understand general societal and economic trends, the real challenges lie in identifying concrete investments—and helping you make sure that any opportunity you choose supports your unique wealth plans and goals.
1 Data Age 2025, International Data Corporation (IDC), 2017.
3 90% of the nation’s $3.5 trillion in annual healthcare expenditures are for people with chronic and mental health conditions: https://www.cdc.gov/chronicdisease/about/costs/index.htm
4 “Introducing the Rare Diseases Genomics and Precision Health Knowledge Base,” Centers for Disease Control and Prevention.
5 FAO, IFAD, UNICEF, WFP and WHO. 2019. The State of Food Security and Nutrition in the World 2019. Safeguarding against economic slowdowns and downturns.