Science and technology will increasingly challenge conventional models and change our lives.
We see extraordinary innovation coming in areas as diverse as biotechnology and healthcare, life sciences, AI, data management, cloud infrastructure, 5G, robotics and automation, electrified transportation, general IT, and the adoption of clean energy.
Biotechnology. Scientific developments in the biotechnology sector have resulted in innovative breakthrough drugs and new cures. These developments also underline an exponential rise in life expectancy that we are about to experience over the next ten years. Not only will we live much longer, but we will also feel younger while living longer.
Artificial intelligence (AI) will unleash a new wave of disruptive innovation by transforming many industries. “Big data” based decision making, empowered by AI algorithms and predictive data analytics, is becoming a key source of competitive advantage for the leaders of the future. The majority of production processes will be improved/optimized through applying AI and machine learning technologies, resulting in improved cost management.
Disruptive intelligent automation (based on AI, robotics, and cloud digital platforms) with increased efficiency and process intelligence should raise broader global productivity. With the convergence of 5G and higher computation speeds, the transition to autonomous manufacturing has started.
Digital finance innovation. In 2021, we reached the critical inflection point for massive institutional adoption of regulated digital currencies and assets. Today there is a clear understanding that every asset in the world has the potential to be tokenized and traded. Value can be unlocked with increasing liquidity in all assets, including property, art, some illiquid commodities, etc.
Blockchain is at the breakthrough point. Twenty years ago, broadband enabled explosive growth of the internet. We are now at a similar point for blockchain technology. Improved scalability, a more transparent regulatory landscape, and increasing institutional adoption are signs that blockchain is ready to break through. Soon it will gain broad acceptance as a backend solution for data processing. Also, because blockchain deals with value flow on a peer-to-peer basis, it will disrupt the industries that deal with value transfer, like financial services.
Climate crisis. The world is heating up with the acceleration of carbon dioxide emissions since the mid-20th century. A climate crisis could trigger economic shocks and supply-chain disruptions with unimaginable consequences. Recent government-initiated zero-carbon initiatives in developed markets and China are giving rise to multiple, market-driven cross-sectoral innovations that are moving society towards lower-carbon economic systems globally.
Stay-at-home and work-from-home environments triggered a multi-year disruption path in e-commerce, telemedicine (telehealth), and corporate IT infrastructure. People learned how to get things done online, and this trend is accelerating.
We now live in a world no one ever experienced before.
impulse (the rate of change in credit growth), one of the best leading indicators of the business cycle, has been declining in main developed nations (G3) during 2021 , indicating a potential negative surprise in economic growth in 2022-2023.
Central banks and governments are printing money like there’s no tomorrow.
The combined ‘fire power’ of monetary, fiscal, and semi-fiscal policies now exceeds US$20 trillion, including at least US$10-11 trillion of budgetary supports. Who will pay for all that?
We are at the beginning of a phase of structurally rising inflation.
A 40-year disinflationary period is over. The deep, structural shift from disinflation to inflation is taking place. In the long term, once the current cycle enters the mature stage, we expect inflation to be between 4 and 5% in the developed world.
Interest rates will rise eventually.
Global interest rates marked an all-time low in 2020, and low rates have been a powerful driver of stock market returns. With economic rebound well on track, broad vaccine distribution, new fiscal stimuli, and longer-run inflation expectations, interest rates and risk premia will rise eventually, particularly given the Fed’s new framework allowing for inflation overshoots. This will structurally push bond yields higher.
The amount of debt in the world has become unsustainable.
Debt has been reaching a new record level each year. It has risen to the point where it limits economic growth. The U.S. is already borrowing money to pay its interest today. If rates go up, the U.S. will have to borrow yet more to make its interest payments. Such a position is unsustainable in the long term.
The current business cycle will be much more volatile than the previous cycle.
Central banks have been manipulating economic cycles by preventing financial crises at any cost. As a result, we have bubbles in all major asset classes. Most of 2021 has been an orgy of speculation. The main factor pushing volatility up is the big top in bullish sentiment, one of the biggest so far in this millennium.
The way to have financial security tomorrow - is to own the piece of the future today.
We think that the way to get through a challenging time ahead and have a secure future tomorrow is to identify the main disruptive trends and invest in the companies that will become the leaders of the future. Many profitable investments owe their success to being early and maximizing alpha through investments in companies whose value others have not yet discovered. Investors that look beyond the “conventional institutional wisdom” of the crowd can reap the benefits of owning the leaders of the future ahead of the majority of market participants.
In the long term, breakthrough results and significant innovations will be reflected in the share price performance of these companies. Regardless of what is happening in the general market or economy, these stocks will become the source of risk diversification and outperformance. Adding an investment strategy which is uncorrelated to the overall portfolio reduces the overall riskiness of the portfolio. And allocating capital to aggressive asset classes via risk-controlling managers has been a very profitable way of investing in the past.