Five Most Disruptive Innovation Themes To Make Investment

Global equity investing offers investors with a wide range of emerging disruptive themes that are otherwise not available in the Indian equity market. Today, we discuss the five innovation themes that are expected to generate significant equity returns in this decade! ARK’s latest research states that five innovation platforms viz., Artificial Intelligence, Robotics, Energy Storage, DNA Sequencing and Blockchain technology are evolving and converging at the same time, resulting in transformation of the respective related industries. We believe that these disruptive innovation themes can generate significant equity returns over the long term and warrants a position in an investor’s portfolio.

Artificial Intelligence (AI)

What is AI?

AI is a wide-ranging branch of computer science concerned with building smart machines capable of performing tasks that?typically require human intelligence.

?How is the AI theme accelerating?

AI is seen as central to the digital transformation of society and it has become priority for many businesses Some AI technologies have been around for more than 50 years, but advances in computing power, the availability of enormous quantities of data and new algorithms have led to major AI breakthroughs in recent years. Future applications are expected to bring about enormous changes, but AI is already present in our everyday lives. Some of the existing use cases of AI by different industry are listed below

·?E-commerce – Personalized shopping recommendation, virtual shopping assistants and chatbots, fraud prevention etc.

·?Education – Digitization of content, voice assistants, etc.

·?Lifestyle – Autonomous vehicles, spam filters in email, facial recognition, and customized recommendation to users

·?Navigation – GPS technology

·?Healthcare – Analyse chronic conditions with lab and other medical data, use historical data and medical intelligence for discovery of new drugs, etc.

·?Agriculture – Identify defects and nutrient deficiencies in the soil, AI bots helps at a higher volume and faster pace than humans, etc.

·?Automobiles – Used to build self-driving vehicles

·?Social media – Instagram, Facebook & Twitter all uses AI to offer users a more personalized experience

How can investors benefit?

AI is revolutionizing the industries with its applications and helping solve complex problems. AI has acted as the main driver of emerging technologies like big data, robotics and internet of things and it will continue to act as a technological innovator for the foreseeable future. ARK’s research suggests that the market cap of AI hardware and software companies could scale at ~50% annualized rate, increasing from $2.5trillion in 2021 to $87 trillion by 2030. There are US listed ETFs that capture artificial intelligence themes which investors can invest in.

Battery Technology

Where are batteries used?

Lithium-ion batteries are used in many products that keep the modern world running, such as electronics, wireless headphones, handheld power tools, small and large appliances, electrical vehicles and electrical energy storage systems.

?What are the growth drivers for lithium ion batteries?

The growing adoption of electric and hybrid electric vehicles and rising adoption of battery technology in the renewable energy industry?are some of the major factors driving the market. There has been increasing demand for lithium ion batteries due to its high energy density attribute meaning they are smaller and lighter than other types of batteries while holding the same amount of energy.

?How can investors benefit?

Recent forecasts suggest that the global EV market could increase from $246.7 billion in 2020 to $823.74 billion by 2030, helping drive the demand for batteries. Furthermore, the World Bank estimates that five times more lithium batteries will be needed to meet global climate targets. Battery technology is expected to generate more than $30 trillion in market cap by 2030 and investors can truly participate in this theme by investing in Lithium & Battery based ETFs listed in the US.

Blockchain & Digital Wallets

What are Blockchain technology and its applications?

Blockchain is a type of technology that does not rely on any central financial intermediaries and is managed by multiple participants. Many people associate blockchain technology with crypto currencies, however it has a wider adoption and many organizations are adopting blockchain technology to improve their operations, specifically for complex and decentralized systems.

?What are digital wallets?

Digital wallets are financial accounts that allow users to store funds, make transactions, and track payment histories by computer. The coronavirus pandemic led to the change in consumer habits with regard to cash and sped up digital payments globally. Some digital wallets include Apple Pay, Samsung Pay, AliPay, PayPal Amazon Pay and GPay.

?How can investors benefit?

·??The future growth of blockchain technology appears compelling as it offers instantaneous transfers, suppression of non-value add intermediaries, improved controls among chain participants, lower transaction costs, reduced data loss and chronological traceability.

·??Today, digital wallets around the globe are penetrating traditional financial services, including brokerage and lending, driven by superior user experiences and much lower costs of acquisition. We believe that trillions in annual cash transactions will be digitized, presenting a data monetization opportunity.

·??Blockchain and digital wallet industry is expected to reach $50trillion in equity market capitalization by 2030 and there are well-diversified US listed ETFs that helps investors to participate in this theme.

Robotics

What is Robotics?

Robotics is an interdisciplinary branch of computer science and engineering. Robotics involves design, construction, operation, and use of robots. The goal of robotics is to design machines that can help and assist humans.

?Which industries use robots?

The auto manufacturing segment remains robotics largest end market; however, there are other emerging segments like healthcare, hospitality, logistics, construction which have started using robots. The operational stock of industrial robots tripled over the last decade and looking at the increasing adoption across industries the future growth looks promising.

?How can investors benefit?

Harnessing the power of AI, robots likely will learn from and adapt to the world around them, lowering upfront and training costs. The average cost of an industrial robot declined from $46k in 2010 to just $27k in 2017 and is forecasted to dip below $11k by 2025 as technology improves and scales, allowing for broader adoption across industries. Furthermore, weakened supply chains, rising wages, labour shortages and changing demographics have created greater demand for automation and are likely to be in favour of increasing adoption of robots across a range of industries. The global robotics market is forecasted to triple by 2026 to $74BN (vs 23BN in 2020). There are US listed Robotics & Artificial Intelligence ETFs for investors to consider participating in this theme.

Genomics

What is genomics?

Genomics is a field of biology focusing on the structure, function, evolution, mapping, and editing of genomes (complete set of DNA). Genomics is the next big thing in the field of medical science.

?What is the advantage and cost of genomics?

Genome sequencing helps to provide novel insights into diseases as it allows for faster and more precise pre-clinical experimentation, improving the probability of early-stage research entering clinical trials. Over time, there has been significant cost reduction in the genomics industry with the cost of one human genome sequencing reducing from ~$100MN in 2001 to less $1K in 2021.

How can investors benefit?

The genomics industry over the past two decades has been creating a foundation in several key areas and more than 238 gene therapy were initiated in 2020 and a total of 712 are now under way, representing explosive growth and market opportunity in the future with hundreds of new gene therapies likely reaching the approval stage in the coming decade. Technology improvements and cost reduction in genetic testing is expected to grow the market size from $23BN in 2020 to $95BN in 2028. Investors can benefit from investing in focused ETFs listed in the US that capture the themes of biotechnology and genomics.

How are all these technologies coming together to disrupt industries?

·??The convergence of robotics, battery technologies, and artificial intelligence is likely to collapse the cost structure of transportation, impacting the economics of auto, rail, and airline activities.

·??The convergence of next generation DNA sequencing, CRISPR gene-editing, and artificial intelligence (AI) has the potential to transform health care. These advances could accelerate the pace of scientific discovery, personalizing medicine to cure disease instead of masking symptoms.

·??The convergence of application programming interfaces (APIs), social platforms, and blockchain technology could integrate business and consumer marketplaces, disintermediating the middlemen dominating financial ecosystems.

What should investors do?

·??In the past few years, investor’s appetite and interest has been steadily growing in thematic investment with AUM growing at a CAGR of 45% in the last 3 years. In the era of new technologies, disrupting existing paradigms, demographics reshaping the needs of the world’s population, shifting consumer behaviours are all creating compelling investment thesis.

·??We recommend investors to build a satellite portfolio in addition to their core portfolio by having allocation to high conviction decadal themes that enjoy tailwinds from structural changes in the way we live and work. Furthermore, the recent volatility is providing a compelling opportunity to accumulate these themes, which have not provided an attractive entry point for the past few years.

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