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Keep your head when investing in ‘unstoppable’ investment trends

Thematic investing is about identifying the trends that are going to shape how the world works tomorrow.

Back View in the System Control Center Operator Working. Multiple Screens Showing Technical Data.

by
Lynn Hutchinson

in Features

13.08.2020

The earlier you can invest in the technologies that will dominate the world in the future, the higher the potential return on that investment will be. However, although these trends look almost unstoppable, they tend to involve products and technologies at their early stage of development, so these investments can see significant volatility even in their early years. This means that timing is also important at the early stage of the development of a new investment theme. A good example of this has been the smartphone revolution. The world’s first smartphone was invented by IBM in 1992 and consumers could own their own device in 1994. But it wasn’t really until the iPhone was launched in 2007 that smartphones really took off – and the big money started to be made.

Like smartphones in the 1990s, there are many other significant long-term themes in which it is possible to invest today, but they are still in the early stages of their lifecycle. The future looks very bright for these industries, but profitability is clearly a long way off. There are a number of exciting investment themes already identified by markets. These include areas such as cybersecurity, cloud technology, robotics & artificial intelligence, healthcare innovation, 
e-commerce and digitalisation of payments. Interest in these themes has accelerated during the pandemic, as they appear to offer solutions for increased homeworking, social distancing and even using big data sets to find medical treatments that could help deal with Covid-19. 

There is widespread investor interest in all these areas and there have been many new product launches in these sectors. This means a significant amount of new money has been flowing into these products, boosting the performance of the underlying investments.  These products may deliver outperformance over global equity markets over the long term – but could also deliver extremely volatile periods. Cybersecurity has become an inescapable issue. As more systems, data and people connect digitally, vulnerability is on the rise. Cyberattacks pose a threat not only to individuals but also to corporations and governments, as they can cause security, financial and reputational damage. According to Cybersecurity Ventures – a world-leading researcher on cybercrime: 

  • Worldwide spending is set to exceed $1 trillion from 2017 to 2021. 
  • Cybercrime damages will cost the world $6 trillion annually by 2021, up from $3 trillion in 2015 – this represents the greatest transfer of economic wealth in history, risks the incentives for innovation and investment and will be more profitable than the global trade of all major illegal drugs combined. 
  • For employment, the world will have 3.5m unfilled cybersecurity jobs by the end of 2021 – the cybersecurity unemployment rate was at 0% in 2019, where it has been since 2011.
  • Cybersecurity Ventures expects that a business will fall victim to a ransomware attack every 11 seconds by 2021, up from every 14 seconds in 2019. This makes ransomware the fastest growing type of cybercrime.

There have been several reports of attacks directed to hospitals and other infrastructures in the past, but also lately since the appearance of Covid-19. Almost one million people in Michigan in the US had their medical files exposed in data breaches, according to leading cybersecurity group Checkpoint. Hackers have used the disruption – with more people working from home on potentially insecure networks, to ramp up fraudulent activities. It normally takes two to six months for a cyber-attack to be identified, but Interpol issued an alert warning it had detected an increase in the number of attempted ransomware attacks against hospitals and other front-line organisations as they battle the deadly virus. 

Cloud technology (part of some cybersecurity investment products) is also likely to see solid growth. As we move into a world that thrives on cloud platforms, internet-based services, mobile applications, interconnected systems and digitised networks, the demand for cyber-security infrastructure and services can only increase. The increase in working from home means it is imperative that companies put the necessary defences in place, both, at the server level (cloud protection) and user-level (end-point protection). The need for encryption and safe transfer and storage of data remains vital.

The promise of cloud computing relies on its ability to deliver enterprise-level solutions on demand, through a simple internet connection. Cloud computing represents a significant source of disruption not only in the technology sector but in the investment world as well. Cloud computing has become ingrained in nearly every aspect of our lives by fundamentally altering how we consume, process and share information in the digital age. But investors must remember the lesson taught when smartphones were invented. Although the excitement around any particular theme may be warranted in its early stages – the profits may take some time to appear. 

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

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