Investors should look beyond the headlines and imagine what the future will look like to make sure they back the companies likely to benefit most from the widespread disruption being witnessed across industries, according to Schroders’ Alex Tedder. 
Technological advances have introduced a significant amount of disruption to established industries and business models in recent years, as new market leaders have emerged and some incumbents have fallen away.
“A modern investor needs to understand the power of disruption to identify which companies are likely to benefit and which are set to become victims,” said Tedder (pictured), chief investment officer for global and US equities.
“Investors looking to create a portfolio of stocks may wish to allocate some of it to the theme of disruption in general rather than focusing on a particular country, industry or index.”
The successful companies in the future will undoubtedly be those that embrace disruption and adapt to the changes, Tedder (pictured) added, just as those companies that fail to adapt or seek to deny that changes are happening could easily fall by the wayside.
In the context of the global economy, he noted, disruption can be the result of any number of major trends.
He cited technological innovations (for example, the internet, mobile phones or artificial intelligence); changing consumer habits (such as the switch to internet shopping); and new regulations or government policy (such as the switch towards renewable energy sources or tougher regulations on the sale of products such as tobacco or alcohol).
Tedder pointed out that disruption is everywhere and affects all aspects of modern life.
“Industries are being transformed, as small, nimble start-ups with superior technology and innovative products displace large established companies that have dominated their sectors for decades,” he explained.
Disruption is not just affecting obvious areas such as telecoms, software, retailing and media, however. It is also having an impact across the spectrum, including areas often seen as being immune from disruption.
“For example, legal services are set to be transformed as the use of artificial intelligence will make the process of legal research quicker, less labour-intensive and, hopefully, considerably cheaper.”
Tedder said new technologies in healthcare are changing the way that pharmaceutical companies conduct research in areas such as genetics and gene therapy that would have been impossible only a few years ago. 
“DNA sequencing technology can now be applied to small, targeted areas or the entire genome, allowing researchers to investigate and analyse diseases in a completely different and much more cost-effective way, which is transforming the way that new drugs are being developed,” said Tedder.
This phenomenon of creative destruction is not new, however, he pointed out, highlighting the industrial revolution as one of the earliest examples of economic disruption. “But the pace of change as a result of technological innovation is accelerating,” he added.
Tedder believes the technological revolution of the past few years, with the expansion of the internet and mobile phone usage, is just the beginning.
“We’re now at the point where technologies have converged to such a degree that there will be an explosion in innovation in the next few years,” he said.
Artificial intelligence will continue to develop at a rapid pace, underlining its increasing importance in managing and storing the explosion in data (such as digital photos, music, films etc.) seen in the past few years, predicted the portfolio manager who runs the Schroder ISF Global Disruption fund, and four other funds.
“Industries such as banking will be transformed as new technology radically changes the way consumers manage their money,” he said. “Retailers face ever more competition from their online rivals, while the next few years will see the start of a transformational shift from internal combustion engines to electric vehicles.”
In short, Tedder said, disruption is changing the way the global economy operates and the rapid evolution of new companies is transforming the way they interact with their customers.
He argued that companies faced with disruption—from a new competitor or product—typically react in one of three ways. They could become an enabler (the conduit for change), an adaptor (the positive respondent who seeks to amend their business or product range), or a denier (the incumbent who fails to adapt).
“In California’s 19th century gold rush, the enablers – and the people who got rich – were the people selling the picks and shovels,” said Tedder.
“Software companies are an example of the enabler group today. But whenever there is disruption, invariably there are companies that provide the tools for change to take place –often without the risks associated with the disruptors themselves.”
Tedder concluded that the modern world is changing fast. Disruption, he said, is now a feature of our everyday lives, transforming consumer habits and the way that companies and customers interact.
“But the interesting feature from an investment perspective is the growth that arises from disruption,” he explained.
“When you get disruption, you tend to get innovations and developments that can be quite powerful. Innovation creates growth that has yet to be recognised.”
Performance of fund vs sector & benchmark since launch
Source: FE Analytics
The Schroders ISF Global Disruption fund launched in December 2018 and aims to provide capital growth by investing in companies worldwide which benefit from disruption.
Year-to-date, the offshore fund has returned 25.89 per cent compared with a 16.49 per cent rise in the MSCI AC World benchmark. It has an ongoing charge figure (OCF) of 1.89 per cent.