The fourth industrial revolution is in full swing, with disruptive technologies changing the way we live and work. Investors can capitalise on these megatrends by investing in thematic exchange traded funds (ETFs).
What is the fourth industrial revolution?
The fourth industrial revolution is the current environment where disruptive technology trends are changing the way we live and work. These include: the Internet of Things (IoT), robotics, artificial intelligence (AI), future cars/autonomous vehicles, blockchain, cloud computing, healthcare/genomics and social media.
Unlike previous industrial revolutions, these technologies are rapidly combining to create an accelerating, virtuous cycle of disruption. While previous industrial revolutions were often localised, today’s advancements are interconnected and global, with its impact already visible in homes and businesses across the world.
While these technological trends are long term, the recent coronavirus pandemic has quickened the pace of adoption of these innovative technologies and highlighted areas of application.
Coronavirus outbreak has led technology stocks to outperform
With millions of people around the world now working from home, key tech trends are being adopted even sooner than analysts expected. From telemedicine and medical wearables to cloud computing and AI/robotics. The world is changing fast and businesses, hospitals and consumers and commuters are unlikely to go back to pre-Covid-19 habits.
Remote working means the need to access information, tools, systems and communicate remotely has never been higher, creating a huge demand for cloud-based technology. Big tech has benefited from growth of their remote cloud platforms – particularly leaders in Infrastructure as a Service (IaaS) like Amazon, Microsoft and Google. This growth in remote access has also highlighted the need for enhanced cybersecurity and we have recently witnessed spiking demand for data and privacy protection – boosting cyber security stocks. Over 80% of IT managers expect cyber security to be their largest spend in 2020 as companies rush to plug vulnerabilities in their systems.1
This demand comes from both the public sector (schools, governments, hospitals) and large/small players in the private sector. The likes of Adobe, Salesforce, SAP and Oracle are big beneficiaries of this rollout of cloud’s plumbing. Cloud spending is benefiting at the expense of other IT areas. The flexibility and lower-cost subscription model offered by the cloud – makes it increasingly an easy solution for many corporate IT departments.
In China and Europe, lockdowns are also spurring local players (Alibaba, Baidu and Tencent) to enjoy record online traffic. Baidu and Weibo have both seen a substantial increase in traffic due to the lockdown in China. Other players including Facebook and the Meet Group2 have enjoyed record usage – powering stock market gains. Meet Group’s video usage is up 40% and Facebook has reported a 50% increase in messaging and up to 200% increase in video calling since the start of the coronavirus crisis.3
With traditional models of commuting and public transportation under question, the future car segment powered by Tesla has enjoyed a significant rerating in April and is now the world’s largest car company based on market capitalisation, with the share price having recovered significantly since its March lows – and recently making record highs.
The fourth industrial revolution will impact all sectors of the economy
Tangible evidence of the fourth industrial revolution can be seen in of our households and neighbourhoods: smartphones, electric vehicles, smart TVs, mobile banking apps and virtual assistants, but the change in being felt in almost every sector of the economy.
Manufacturing is becoming faster and more efficient – robotic workers, smart factories and supply chains and deliveries by autonomous vehicles are now a reality.
Transportation and travel are changing with the popularity of electric and hybrid vehicles, and the advent of autonomous cars, trucks and drones.
AI and big data are driven by exponential increases in computer power and are being used to interpret previously unimaginable volumes of information, helping businesses and governments research, discover, plan and react faster and smarter than before.
Digital fabrication technologies, meanwhile, are interacting with the biological world on a daily basis. Engineers, designers, and architects are combining computational design, additive manufacturing, materials engineering, 3D printing and synthetic biology to pioneer a symbiosis between microorganisms, our bodies, the products we consume, and even the buildings we inhabit.
Moreover, we are facing a range of new technologies that combine the physical, digital and biological worlds. Advances in AI diagnostics, robotic surgeries, digital implants, customized medicines and gene editing are transforming the way illnesses are managed and even challenging our ideas about what it means to be human.
In line with the race for a medical vaccine and the demand for healthcare solutions, genomics and the field of gene editing has received a large amount of attention. With Covid-19’s genetic code now being known – genomics companies are at the forefront of vaccine research and possible human trials being conducted globally.
World Economic Forum expect widespread adoption of new technologies
The evidence of dramatic change is all around us and it’s happening at an exponential rate. Professor Klaus Schwab, Founder and Executive Chairman of the World Economic Forum, is convinced that we are at the beginning of a revolution that is fundamentally changing the way we live, work and relate to one another.
‘Prior industrial revolutions liberated humankind from animal power and made mass production possible and brought digital capabilities to billions. This fourth industrial revolution is fundamentally different – characterised by a range of new technologies that are combining the physical, digital and biological worlds. It is impacting all disciplines, economies and industries, and ultimately may even challenge ideas about what it means to be human.
We stand on the brink of a technological revolution that will fundamentally alter the way we live, work, and relate to one another. In its scale, scope, and complexity, the transformation will be unlike anything humankind has experienced before.
The possibilities of billions of people connected by mobile devices, with unprecedented processing power, storage capacity, and access to knowledge, are unlimited. And these possibilities will be multiplied by emerging technology breakthroughs in fields such as AI, robotics, the Internet of Things, autonomous vehicles, 3D printing, nanotechnology, biotechnology, materials science, energy storage, and quantum computing.’
Technological advancements bring both opportunities and challenges
Like the revolutions that preceded it, the fourth industrial revolution has the potential to raise global income levels and improve the quality of life for populations around the world. To date, those who have gained the most from it have been consumers able to afford access to the digital world.
Technology has made possible new products and services that increase the efficiency and pleasure of our personal lives. Ordering a cab, booking a flight, buying a product, making a payment, listening to music, watching a film, or playing a game – any of these can now be done remotely.
In the future, technological innovation will also lead to a supply side miracle, with long-term gains in efficiency and productivity. Transportation and communication costs will drop, logistics and global supply chains will become more effective, and the cost of trade will diminish, all of which will open new markets and drive economic growth.
At the same time, the revolution could yield greater inequality, particularly in its potential to disrupt labour markets. There are legitimate concerns that automation will substitute for labour across large areas of the economy. Ultimately there should be a net increase in safe and rewarding jobs and more efficient human society and sue of energy.
Many predict that in the future, talent, more so than capital, will represent the critical factor of production. This will give rise to a job market increasingly segregated into ‘low-skill/low-pay’ and ‘high-skill/high-pay’ segments, which in turn could lead to an increase in social tensions due to increased income inequality.
The largest beneficiaries of innovation tend to be the providers of intellectual and physical capital – the innovators, shareholders, and investors.
Thematic ETFs give investors access to megatrends
Thematic investing has grown in popularity over recent times. Typically, investors are looking to find investment products that can give them access to ‘themes’ usually in megatrends and are often specifically focused on single themes like cloud technology companies or a broader exposure to a basket of themes. The latter is a more diversified approach and is often attractive for investors looking for coverage of multiple themes rather than focusing on one.
Exchange Traded Funds (ETFs) have become the product of choice for thematic investing and are a simple way to invest. The main advantages of ETFs are as follows:
- ETFs are usually low cost compared to mutual funds and hedge funds
- ETFs are simple to buy and sell
- ETFs trade the same as equities
- ETFs allow you to buy a diversified basket of shares in one trade
- ETFs are not subject to stamp duty
Thematic ETFs to invest in the fourth industrial revolution
There are a growing number of thematic ETFs available that investors can use to invest in. The table below shows a collection of ETFs that track a basket of companies in some of the industries that benefit from the fourth industrial revolution.
Figure 1: thematic ETFs to invest in the fourth industrial revolution
An example of a diversified approach is the HAN-GINS Global Innovative Technology UCITS ETF (ITEK/ITEP) which enables investors to buy into companies that are driving the fourth industrial revolution. The ETF includes leading companies involved in robotics & sutomation, cloud computing & big data, cyber security, future cars, genomics, social media, blockchain, augmented & cirtual reality. It uses an equal weight approach across the themes and at the stock level. This provides built in diversification with no large exposure to any single company. For instance, exposure to the FAANGs (Facebook, Apple, Amazon, Netflix and Alphabet) is around 5% of the holdings only.
The ETFs listed above are all available to invest in on IG’s share dealing platform and commissions are as low as £3 per trade for UK listed shares and ETFs.
The original article can be found at IG.com