Uncovering disruptive growth themes
The value of investment research
Over the past decade, traditional industries have seen increasing competition from innovative new companies entering the market with lower-priced products, better business models, or even an entirely new approach. As the pace of change continues to accelerate no sector is immune from these so-called ‘disrupters’. We focus on two areas where we believe innovation is playing a significant part in disrupting the traditional status quo and, as investors, we see the most significant opportunities.
The world is moving away from a ‘one-size-fits-all’ approach to healthcare, as genetic analysis allows doctors to understand each patient better. Companies are developing new ways of using biomarkers to create personalised medicine (biomarkers are biological molecules found in body fluids or tissues that can be coded for by a particular gene). Considering ageing demographics and constrained government budgets, these types of solutions will benefit society by improving treatment decisions, as well as the efficiency of healthcare spending overall.
Autonomous and electric vehicles
In the decade after 2025, the autonomous vehicle market is estimated to be worth US$77 billion; with 18 million unit sales by 20351. Here are some key reasons why we see potential in this space:
- Safety: in 2016, nearly 1.3 million people died worldwide due to vehicle crashes. Further to this, 94% of accidents in the US involve human choice or error2</sup >.
- Congestion: in the US, traffic congestion results in 5.5 billion extra hours of unnecessary travel time with an estimated US$121 billion in lost time and additional fuel costs3.
- Liability: insurance premiums will reduce as safety increases, but where will the responsibility fall?
Given this trend, should car manufacturers be considered the best investment opportunities? The benefits spread beyond the manufacturers to companies designing and producing semiconductors, batteries, and other sustainable component parts used in electric vehicles.
The value of research
In the long run, the winners are likely to be firms who enjoy a sustainable technological advantage and occupy a sizable market with low levels of penetration. Of course, the priority is as much about avoiding the losers as finding the winners and therefore sound financials, such as a firm’s ability to generate cash flows and recurring revenue models, remains an integral part in any screening process. Given the scope and speed of change unearthing the potential winners and avoid the losers requires a significant commitment to research. This goes beyond analysing company data and accounts; management teams need to be interviewed and where necessary back-up by regular site visits.
In a world of information overload, establishing institutional-quality research is a vast undertaking, which is why we at Close Brothers Asset Management have made a significant investment in research with a dedicated, in-house team here able to screen over 12,000 companies. Having this robust research capability enables our team to quickly uncover what we believe are the best investment opportunities of tomorrow.
1. Lewis M. Clements, Kara M. Kockelma: Economic effects of automated vehicles
3. The Atlantic: The American Commuter Spends 38 Hours a Year Stuck in Traffic, published 06/02/2013.
Robert Alster, Head of Research, Close Brothers Asset Management.
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