Where to Invest in Future Trends (From Bloomberg) [3 Articles]
~ Saturday, January 6, 2024 Blog Post ~
By Suzanne Woolley, December 19, 2023
Bets on the space-based economy, artificial intelligence and longevity-tech firms are some of the best long-term opportunities, according to investment managers.
Many investment strategies focus on long-term growth. But oftentimes it’s difficult to imagine just how different the future might look decades from now.
Humans could have longer life spans, benefit from the burgeoning space-based economy, rely on artificial intelligence, and operate with a whole new set of geopolitical risks.
At least, these were four of the big-picture trends investment managers zeroed in on when asked by Bloomberg News what areas represent the biggest opportunities for investors in the future.
Below they share their analysis on these trends — which could change how we live, work and invest — and how to have a smart approach when investing.
Before contemplating any future investment, however, it can be important to focus on the present and be sure your finances are well-protected from any shorter-term setbacks. A look at The Seven Habits of Highly Effective Investors can help you start that process.
1) Chad Anderson, managing partner, Space Capital
The Space-Based Economy
The vision: Most people have preconceived notions of the space economy as the Apollo moon landing and the international space station — of grand human achievements. They don’t typically think about entrepreneurs transforming nearly every major industry here on earth, but that’s the multi-trillion opportunity our venture fund focuses on. The space economy is much more than rockets and satellite hardware.
Space technologies are playing an increasingly vital role in our economy and will continue to transform the world’s largest industries. In times of uncertainty, enterprises and governments want more information, not less. Space technologies are critical infrastructure, and enterprises and governments continue to spend across market cycles.
The opportunities: The key tech stacks are GPS, geospatial intelligence [intelligence gained via analysis of imagery and signals on earth] and satellite communications. Emerging industries get a lot of media — lunar markets, space stations — but are a small part of what’s going on.
The history of GPS provides a framework for understanding how space-based technologies can create new investment opportunities. GPS was built by the government, for the government, and was off-limits to anyone else by design. But companies like Trimble and others developed commercial receivers to harness this valuable positioning signal. They made it accessible to the tech community, which built location-based services such as Google Maps, Uber, Lyft, Foursquare, and even Pokemon Go.
We see the same thing playing out in geospatial intelligence. Low-cost access to orbit via SpaceX enabled the launch of distributed networks of hundreds of small satellites, which generate an unprecedented amount of new data. We’re starting to see the first “distribution” companies in GEOINT, such as SkyWatch, as well as new applications being built on top of this dataset, like Arbol, Regrow, Indigo Ag and Shield AI, that focus on multi-trillion-dollar industries such as agriculture, insurance, construction, and more.
SpaceX will bring us into the next phase of the space economy with its Starship vehicle, which will be the world’s largest, most powerful, and first fully reusable transportation system designed to carry both crew and cargo to Earth orbit, the Moon, Mars, and beyond. It will lower the cost of getting into orbit by another order of magnitude. It will open the door to many new possibilities, from hotel-like tourism in orbit to lunar base stations, off-earth manufacturing plants, and more.
How to Invest
Most of the action is in the private markets, but we’re beginning to see some companies list on public markets. There’s been speculation about the potential for SpaceX to spin off Starlink, but this is just one of many emerging opportunities for retail investors. Just as the tech industry went from only a handful of public stocks in the 1990s to the massive market it is today, the same trajectory is expected for the commercial space industry. In the same way that every company today is a tech company, every company of tomorrow will be a space company.
2) Abby Miller Levy, co-founder, Primetime Partners
Longevity’s Promise
The vision: What our venture fund focuses on is not if we can extend life spans, but what happens when we do expand life spans — what needs to be built to accommodate an aging population. What are the implications for our infrastructure if 50% of Americans live to be 100? Stanford University’s Center on Longevity predicts a century-long life expectancy will be the norm for all newborns by 2050. What happens to the health-care systems, financial services industry, real estate, consumer services and media on a global scale?
The opportunities: Historically, aging has been a local and human services business. Since the Covid-19 pandemic, digital health, fueled by telemedicine and AI, is having a significant impact on the scalability of our expensive health-care system to better care for a growing older adult population. But technology alone can’t solve the care gap of an estimated 12.9 million health-care worker shortage projected globally by 2030. We need alternative sources of care, like family caregivers. In the US, there are at least 53 million unpaid family caregivers and there is negligible private economy or support systems for them. Those systems are just emerging and it’s an area we’re investing in — three of our portfolio companies focus on this: Aidaly, Carewell and RubyWell.
In financial services, we’re looking at new products and services to help with financial longevity and reverse the trend that half of Americans are expected to run out of money in retirement. Financial longevity requires workforce longevity and starting retirement savings earlier and more meaningfully. We’re invested in a digital-first, affordable 401(k) business, Penelope, that services small businesses and increases access to critical retirement savings products for all employees.
There’s also an opportunity in supplemental insurance for retirees — most Americans mistakenly think home health-care aides are covered in Medicare. So how do you build long-term care insurance, version 2.0? There are about four start-ups here, including HCG Secure. What caused insurance companies such trouble with earlier versions of LTC insurance was that there was no cap on what was covered. These newer products are right-sized to be able to charge lower prices, and so the reward is lower. But the firms provide services such as helping to find geriatric care managers, and know what things states may pay for. Built-in support services mean customers are less likely to need as many days of help.
There are also start-ups focused on dementia care management, because we only have 2,000 neurologists in the US and everyone is going to want these drugs. Isaac Health offers a comprehensive dementia diagnostic, plus ongoing dementia care management; Tembo Health offers complete health-care services for patients with dementia. Both businesses are fully virtual, are reimbursed by Medicaid, Medicare and select commercial insurance, and can support and educate family members impacted by their loved one’s disease.
How to Invest
Smaller, thematic venture capital funds like ours periodically raise funds; the buy-in can be around $1 million from individuals and family offices. If you have conviction around a certain early stage company and can provide relevant expertise to it, founders are often happy to include angel investors in earlier fundraising rounds. Investors without that kind of money, but with funds they can take risks with and won’t need for 10 years, can explore angel investor networks, or find ETFs, mutual funds, or larger public companies focusing on longevity tech.
3) Brook Dane, portfolio manager, Goldman Sachs Asset Management
An AI-Fueled Future
The vision: We view AI as the most transformative technology we’ve seen in the last 20-plus years. This year the market has narrowly focused on the most immediate beneficiaries and enablers of AI, namely the Magnificent 7. However, we believe the AI opportunity will broaden out beyond this group to companies focused on enabling, enhancing, and effectively leveraging AI to drive business growth.
The opportunities: We look across three AI buckets: the enablers, the data layer and applications. The enablers provide the infrastructure necessary to support AI, such as semiconductor companies, semiconductor capital equipment companies and cloud providers supplying the infrastructure and data servers critical to running AI workloads. Companies we like here include Advanced Micro Devices and Marvell Technology.
Companies in the data layer focus on enhancing data management for AI. These are data infrastructure companies that offer a place to store and analyze huge amounts of data to train large-language models, and cybersecurity solution providers. Palo Alto Networks and Snowflake are among companies we like here.
In the applications bucket you find industries that will use AI to improve products and services they offer. Longer term, companies that can leverage AI to increase efficiency, boost labor productivity and improve their products and services will be big beneficiaries. HubSpot and Adobe are examples of companies that should benefit here.
How to Invest
We are just at the start of what could be a mega tech cycle, with the only areas experiencing real tailwinds so far being the enablers, and the data and security companies. Over the coming years, we expect to see the emergence of new applications that will drive a productivity acceleration. This market segment is being overlooked by investors, given that many companies and technologies related to AI are in early stages with low adoption and huge total addressable markets.
4) Kevin Philip, partner, Bel Air Investment Advisors
Grappling with Geopolitics
The vision: Sadly, there are many circumstances of violence and conflict around the world throughout history that guide our outlook on the economic consequences that may ensue. These circumstances always provide further proof that an eye toward diversification and a long-term perspective are essential for investors and the best strategies to safeguard wealth.
The opportunities: The world has already transitioned from the free flow of capital and globalization orthodoxy following the collapse of the Soviet Union to a new regime of bipolar spheres of influence with democracies and their allies on one side and the authoritarian regimes of China and Russia and their allies on the other. With this in mind, there are several macro factors that we view as the most consequential implications for markets.
When geopolitical tensions escalate, the resulting effects on the stock market can present a mixed picture for investors. As uncertainty heightens, sectors like defense and cybersecurity often inevitably see a surge in demand due to increased security needs. This uptick in demand can attract investors, boosting stock valuations for firms operating within this space.
Additionally, the dollar is likely to emerge as a haven for investors seeking stability, which tends to bolster its value. This dynamic can have a multifaceted impact on the global economy. A stronger dollar can skew trade balances by making American exports more expensive and imports cheaper. Additionally, when US companies repatriate earnings from abroad, the conversion into a stronger dollar can result in diminished profits, affecting their bottom line.
Lastly, any Middle East conflict can increase the price of oil. However, several factors may hold it in check. Domestically, global oil prices are denominated in US dollars, so a stronger dollar helps hold the price of oil down. Globally, US-imposed sanctions on Russia and China’s slowing industrial growth are also factors to consider. Saudi Arabia has also already telegraphed a potential increase in production if oil prices climb toward $100.
How to Invest
If you are going to dramatically change your risk profile, try not to do that at volatile times in the market. As a US investor who spends mostly in dollars, I believe generally in underweighting non-US investments in comparison to the global benchmark of the MSCI All Country World Index. There are plenty of excellent investments to be found in the US, with more transparency and regulation to protect investors than in most other countries.
5) Tony DeSpirito, global chief investment officer, BlackRock Fundamental Equities
Healthy Returns
The vision: Historically, investors have seen health care as a haven for stability. That can still be said, broadly speaking, but there is much more to be excited about. Long-term demographic trends, wide differences in outlooks for businesses and constant innovation, such as the developments in weight-loss drugs, make health care one of the most interesting spaces to be in as an active manager.
The opportunities: It is no secret that with age comes more spending on health care. But what is often overlooked is just how much the world is aging. Demographics across developed markets continue to shift older, notably in the US, which in terms of health-care spending means consistently higher demand. This is a long-term tailwind for a sector that has always held the reputation for consistent earnings growth.
Not all companies will benefit from that tailwind. Today many of the leading pharmaceutical companies face meaningful patent expirations that we believe the market is underestimating in their investment analysis. Investors must identify these distortions to avoid pitfalls and consistently hunt for the next big innovation.
There is no better example than the rapid development in the weight-loss medication space, known as GLP-1s. Already, the long-term implications of these looming mega-blockbusters are setting into the market. To identify the magnitude of impact that GLP-1s could have, our research analysts turned to alternative data to complement deep domain expertise. By gauging early sentiment of users on social media, the team identified just how meaningful the results of these weight loss drugs could be for a user. When you then place into context that there are over 100 million people with obesity in the US alone, the potential total addressable market for these life-changing drugs could be in the hundreds of billions of dollars.
How to Invest
Health care has always been an important aspect of any diversified portfolio, but with current long-term trends and exciting new innovation our team believes health care can be a source of alpha as much a source of safety. Investors can ride the high tide lifting the sector, but should stay prudent finding quality businesses, and hunt the developments that can meaningfully impact patients for the better.
Source:
https://www.bloomberg.com/features/how-to-invest-in-future-trends-2023/
Article #2: A Little Escapism Doesn’t Hurt When Investing in Future Trends (From Bloomberg)
By Suzanne Woolley, December 22, 2023
Here’s an investment theme worth exploring in 2024: Optimism.
In an increasingly uncertain world, looking far ahead to promising developments in space exploration, artificial intelligence, healthcare and longevity may be a way to rekindle some excitement about what the future holds.
A little escapism — beyond the economic, societal and geopolitical conflicts that dominate the news — is not such a bad thing. It could, in fact, be very good for building long-term wealth. That’s where a recent story I pulled together, Where to Invest in Future Trends, comes in. But before we dive into that…
Three things to know:
- Underwater’ car loans signal that US consumers are being slammed by high rates.
- The Beverly Hills of Dubai shows wealthy Indians splurging millions.
- Blackstone goes all-in on Taylor Swift fandom with holiday video.
… And now back to the future. The latest installment of our Where to Invest series zeroes in on where five investment managers see the biggest opportunities in the decades ahead.
One fascinating area Chad Anderson, of venture capital firm Space Capital, dove into is the space economy — here on earth. He sees a multi-trillion-dollar opportunity investing in industries growing up around areas like geospatial intelligence, which is the intelligence gleaned from analyzing imagery and signals on earth.
Anderson points to SkyWatch Space Applications, a private company that connects satellite data operators with application developers. Those developers include defense technology startup Shield AI — whose Hivemind technology enables aircraft to operate without GPS or communication — and Arbol, which says it brings “efficiency, transparency and scale to climate risk management using data, blockchain and an AI-powered pricing platform.”
While many space companies are private, more opportunities are emerging for retail investors in public markets, said Anderson. Examples he cites include a company his firm is invested in, earth-imaging company Planet Labs, and one it doesn’t own, Rocket Lab, a launch and space systems company.
And what story about future trends would be complete without addressing artificial intelligence? In the coming years, opportunities will broaden out beyond the immediate beneficiaries and enablers of AI, a la the Magnificent 7 stocks, according to Goldman Sachs Asset Management portfolio manager Brook Dane.
Some of the ways AI could transform business that Dane focuses on aren’t very sexy, but could have a big impact. Investors could benefit from looking into firms that will help enhance and leverage AI to boost efficiency and labor productivity, he said, pointing to companies including HubSpot and Adobe.
Dane’s comments echo some made in a story we ran back in October, on Investment Mistakes to Avoid Right Now. In that story, Marko Papic of Clocktower Group said that while he thought FAANG stocks were priced to perfection, he expected AI to “help unheralded sectors such as industrials, materials and energy.”
A very down-to-earth future trend was highlighted by entrepreneur and venture capitalist Abby Miller Levy of Primetime Partners. She co-founded Primetime Partners with legendary VC investor Alan Patricof, and explores what so-called longevity-tech companies are doing to create the infrastructure needed in products and services to support longer lives.
The question Primetime Partners is focused on, says Levy: “What are the implications for our infrastructure if 50% of Americans live to be 100?” The fund owns fintech companies like Aidaly, which helps caregivers find more resources; Penelope, which has a digital-first affordable 401(k); and dementia care management start-ups like Isaac Health and Tembo Health.
“The best overall advice I ever received with respect to wealth creation was to save like a pessimist but invest like an optimist,” said Tony DeSpirito, global chief investment officer of BlackRock Fundamental Equities, who I also interviewed for my piece. “If you bought the S&P 500 at the peak just before the Great Financial Crisis in 2007, as long as you didn’t sell you’d be sitting on cumulative annual returns of about 9% per year.”
Send us questions about your own financial dilemmas to bbgwealth@bloomberg.net.
Source:
Article #3: Don’t Mind the Geopolitics. The Case for International Investing Is Strong. (From Barron’s)
By Alexander Torrens, December 1, 2023
With the clock ticking down on 2023, U.S. equities look set to further extend the decade-long period of dominance they have enjoyed over their international peers. Mix in considerable geopolitical uncertainty in various parts of the globe and U.S. investors could be forgiven for leaving their passports at home and sticking exclusively with their home market. I think this could be a missed opportunity.
The case for investing globally is often framed in terms of “why now?” Proponents point to shifting macro conditions or other cyclical reasons to look beyond U.S. shores at a given point in time. Today, the argument might focus on the likely persistence of many of the drivers of U.S. outperformance over the past decade, whether valuation expansion, the epic run of the “magnificent seven” group of tech stocks, or the strength of the dollar. Advocates of mean reversion, meanwhile, tell us that the stark outperformance of U.S. equities is unlikely to last.
But while these are all legitimate, interesting, and important questions to ask, relative calls between markets are notoriously difficult to get right on a consistent basis, let alone time well consistently too. In our view, investors should consider exposure to both the U.S. and international equity markets at all times for two separate, but closely connected, reasons.
The first of these, diversification, is well-understood. Or at least it should be. In the 70 years since Harry Markowitz introduced the world to modern portfolio theory, diversification has with good reason become a bedrock of investor thinking. Done correctly, diversification can potentially allow investors to increase the expected return of a portfolio for the same level of risk.
Of course, when Markowitz labelled diversification “the only free lunch in finance,” he was speaking to the risk/return benefits that accrue from buying uncorrelated assets. Today, the correlation between the U.S. and other developed equity markets is relatively high, so the benefits of diversification are certainly not what they were prior to our globalized era. Only when investors venture into emerging and more esoteric geographies do we see a more material benefit emerge. That said, there is a residual diversification benefit to investing globally that allocators should want to harness: The serving might not be as big, but you’re still getting your sides for free.
The second and most compelling argument for investing globally is the freedom to pursue the very best investment opportunities regardless of where they happen to be listed. Put bluntly, why would you not want access to the broadest possible opportunity set? To be solely exposed to the U.S. is to leave some outstanding opportunities on the table. No country has a monopoly on corporate excellence.
Many of the most interesting companies identified by our fundamental company analysis don’t have U.S. peers, or if they do, they are a rather pale imitation. Just as there are no international equivalents of the Silicon Valley behemoths, there are no U.S. analogues of the storied French and Italian luxury houses. Asian savings and protection? Industrial automation? Fashion and beauty? All long-term opportunities with market-leading exponents domiciled outside the U.S.
Nor are these businesses narrow plays on domestic economies. Overwhelmingly, they are global multinationals deriving a significant proportion of their sales and earnings from countries other than where they are listed. You’re unlikely to be investing in a Japanese automation business for exposure to the Japanese economy or a Danish pharmaceutical firm solely for the domestic healthcare opportunities.
It goes without saying that this bottom-up approach to global equity investing demands rigorous analysis of all stock-specific opportunities and risks. This includes paying due consideration to the impact of geopolitics, an issue very much front of mind for U.S. skeptics of global investing.
At a portfolio level, rather than look at events such as Ukraine or the Middle East through the prism of geography or sector, we think it more relevant to consider risk exposure by the potential for value impairment across stocks, and then aggregate this up. To think of China-Taiwan risk, for example, only as an Asian phenomenon is to overlook the severe ramifications for those U.S. tech companies entirely dependent on Taiwanese chip manufacturers. Better to understand how risk is expressed across real-world businesses, then stocks, then the portfolio. Globalization may be in retreat, but the world is still incredibly interconnected.
The myriad links and chains in the global economy are an inconvenient truth for those who question the wisdom of straying from U.S. shores in an uncertain and volatile world. Ultimately, no amount of U.S. exposure can offer immunity from geopolitical risk. What it can guarantee you, however, is a sizable chunk of country-specific risk, whether you’re 100% invested, overweight or even just at “market” weight. Risk, just like opportunity, can be found anywhere.
Guest commentaries like this one are written by authors outside the Barron’s and MarketWatch newsroom. They reflect the perspective and opinions of the authors. Submit commentary proposals and other feedback to ideas@barrons.com.
About the author:
Alexander Torrens is the head of Walter Scott North America, a global equity portfolio manager and an investment firm of BNY Mellon Investment Management.
Source:
https://www.barrons.com/articles/geopolitics-risk-international-investing-china-israel-b5dc4acd
