Five years ago, much of the excitement in tech focused on artificial intelligence, 3D printers and drones, but while the first of these has helped propel the sector to new heights, the latter two have yet to prove their relevance to investors.
Below, a selection of fund managers from Capital Group reveal which trends they are backing to not only make headlines, but also boost bottom lines, over the coming decades.
Digital payments will be the norm
“A decade from now, I think digital payments will be the norm, and people will give you odd looks if you try to pay with cash,” said Jody Jonsson, equity portfolio manager at Capital Group.
She added that while the speed in take-up of digital payments is noticeable in developed markets, it is even more pronounced in emerging markets, where a lower proportion of people have a traditional bank account. Covid-19 led to a spike in digital payments, and while cash will be used more as the economy gradually re-opens, Jonsson doubts it will ever return to pre-crisis levels.
“As consumers become increasingly comfortable with technology, companies with large global footprints could be poised to benefit,” she said.
“We’ve also seen strong growth in smaller companies based in countries such as Brazil that offer mobile payment platforms for merchants.”
Semi-conductors
One consequence of the acceleration in digitalisation is the increased reliance on semi-conductors, according to Steve Watson, another equity portfolio manager at Capital Group. They are already a common-place element in items such as phones and tablets, automobiles, entertainment systems and other appliances, yet Watson said their importance is only going to grow over the next 10 years.
“It’s said that only 10 per cent of everything that can be measured is being measured today. But I wouldn’t be surprised if it was actually closer to 1 per cent,” he said.
“I think one thing that’s going to be vastly different a decade from now is the penetration of semi-conductors to monitor many more aspects of our daily lives.”
There is currently a global shortage of semi-conductors. During the initial months of the pandemic, disruptions to supply chains and factories caused a bottleneck, but even though production is back to normal, the accelerated adoption of tech has pushed supplies to the limit.
“The recent global shortage in automotive chips underscores the dependence the industry now has on chipmakers. As vehicles become autonomous, they will require even more advanced components to make them safe and efficient,” Watson said.
“Over the next decade, I expect chipmakers to be working overtime to satisfy the robust demand for semis across industries.
“In my portfolios, I’m interested in companies that may be misunderstood by the market but are working on transformative ideas to change daily life.”
Wearable technology will blur the lines of reality
Another theme the Capital Group managers are forecasting is once-futuristic technology becoming commonplace.
Mark Casey, another equity manager at the group, pointed to the Babel Fish from ‘The Hitchhiker’s Guide to the Galaxy’ as an example of how science fiction could soon become fact.
“The Babel Fish was a small, bright yellow fish. If you put it in your ear, it would feed off brainwaves around you and let you understand anyone who spoke to you, even if you weren’t familiar with their language.
“In 10 years, I think there will be devices powerful enough to make real-time translation a reality, be it through a wireless headset or smart glasses.
“Devices like these could transform the tourism industry, giving people more confidence to travel to and possibly even live in countries where they don’t know the native language,” Casey said.
So-called ‘smart technology’ already exists in the form of smartwatches and exercise trackers, but Casey thinks these could be the early generations of much more advanced devices.
“Improvements in machine learning, smart wearable devices and augmented reality could enable other helpful features,” Casey said.
“I’m excited to see what new features they and their competitors deliver between now and 2030.”
Driverless vehicles
Chris Buchbinder, another equity portfolio manager, believes the switchover to electric vehicles will not only be realised but normalised in the future, adding the market has yet to fully appreciate this trend.
“At the moment, the market leaders are embedded in other companies — such as Alphabet’s Waymo, Amazon’s Zoox or the Cruise division of GM — so investors can’t buy a pure-play autonomous driving company,” he said.
“But as these fleets roll out more publicly, the market should start to re-evaluate these companies and realise this is a real business, not a science project. As vehicles become more about technological components and less about traditional manufacturing, winners will emerge from a variety of industries.”
Alongside this, Buchbinder thinks that hybrid and hydrogen vehicles will be more widely used, not just in cars but aircraft as well, as the world focuses more on climate change and carbon reduction.
“The impact on global emissions could be significant if we transition to a world with autonomous electric vehicles on the road and aircraft transportation shifting from oil-based fuel to a mixture of oil, electricity and hydrogen,” Buchbinder added.
Digital entertainment
Last up is a theme that almost everyone experienced and contributed to in the past year: online streaming entertainment.
“They say content is king. But the platform is the kingdom,” said Brad Barrett, investment director and equity investment analyst.
“The shift to streaming content accelerated in the wake of Covid, but it may still be in its earliest stages. Roughly one-third of all content consumption is currently transacted via streaming, but by 2030 I think that’s going to increase to more than 80 per cent.
“You have this incredible combination of streaming being both better and cheaper than traditional television, and I don’t see that changing.”
Barrett said the “network effect can be extremely powerful” for the platforms doing the streaming as the bigger they get, the more they can reinvest in themselves and their content, driving down overall costs which can attract more users.
“Due to economies of scale and high barriers to entry, I expect a winner-takes-most market structure in the future, and those are the type of companies I want to be invested in,” Barrett said.
The same pattern could play out in the online videogame space and “will likely continue its explosive growth into the next decade,” Barrett finished.