Thematic Investing Trends for 2022: The “S-Curve” Way Out for Disruption
How can we make sense of the emerging technologies and resulting disruptions that we're experiencing during the current pandemic, and what does this mean for investment opportunities as we move into 2022?
Jay Jacobs, Head of Research & Strategy at GlobalX, and Freddy Lim, Co-Founder and CIO of StashAway, recently sat down with Nandini Joshi, COO of StashAway, to discuss which disruptive technologies are likely to become mainstream in the year ahead.
Watch the video, or read on to find out the salient points from the webinar on how we can think about thematic investing in 2022.
Look at whether a piece of disruptive technology is nearing an inflexion point to determine if it will take off in 2022 and beyond.
One approach, among others, is not to be led by the hype over the technology but to look at how the adoption rate will increase.
We look at the S curve of adoption for 3 of these themes: robotics and artificial intelligence (AI), e-mobility, cryptocurrencies, and bitcoin technology.
“We're going to see which technologies will set off on new inflexion points to continue growth beyond COVID-19.”
The pandemic has changed how we live, work, and play. As the global economy gradually resumes to normal in 2022, certain technologies that emerged during the pandemic are likely to reach an inflexion point to become mainstream, while others will fade out.
“People need to be careful not to confuse hype with the adoption of a technology.”
It may be hard to price disruptive technologies because there's no historical data to support valuations.
But let's think about Metcalfe's law, which states that the potential of any network is the square of the number of nodes it has. We can then see how valuable an emerging piece of technology can be — the more people there are using it, the more potential it has.
If we apply this to the S curve of adoption, we can see that even though some tech companies may seem overvalued or hyped up right now, they still have a lot of growth potential.
It's also useful to understand that sometimes it's in the earliest phase of a technology that the hype is the highest. Then, the hype starts to die off, and adoption starts to pick up.
“The costs, the quality, the necessity, the ability to implement robotics and AI are likely to accelerate in 2022 and beyond.”
Source: Global X by Mirae Asset
We believe that robotics and artificial intelligence are disruptive themes that will gain traction in 2022. While these technologies have improved over the years, the macro trends we see during COVID-19 are giving it an additional boost.
For example, even as labour costs have been rising, the cost of producing more sophisticated robots has fallen. Supply chains are disrupted, and that's why many companies are looking to make their supply chains shorter and stronger. Interest rates are still low, making it easier to buy robots.
“We can tell from survey work that electric vehicles are likely to experience a massive increase in market share over the next 10 years.”
Source: Global X by Mirae Asset
Electric mobility is another theme to look out for in 2022. Battery prices are falling rapidly, and that makes electric vehicles more affordable. We're also seeing more car manufacturers committing to developing vehicle batteries, particularly the more cost-efficient lithium iron phosphate (LFP) battery technology. At the same time, governments are planning to build up charging infrastructure. All these developments are making it easier and cheaper to drive electric cars.
“So much money has been invested into blockchain that we're going to see these other use cases come to fruition.”
Source: Global X by Mirae Asset We’re seeing the cryptocurrency and blockchain space getting more and more institutionalised. For example, institutions are trading a lot on crypto exchanges. They make up almost three-quarters of the trade volume on major trading platform Coinbase, which means that the asset class is less exposed to the swings of retail investing. Cryptocurrencies are also lowly correlated to other asset classes, which helps diversify your portfolio.
If you’re still uncertain about how stable cryptocurrencies are, consider investing in the “picks and shovels” of this sector where the companies are publicly traded or regulated. These companies include mining companies, those that offer hosting services, and exchanges.
And all these investments pouring into the sector are helping blockchain technology find new use cases in many different ways, fuelling its adoption.
“The risks of traditional businesses being disrupted are coming at a greater pace than before.”
Disruptive technologies will impact investment portfolios. A very traditional portfolio with very traditional assets will be exposed to risks resulting from disruptive technologies that are not quantifiable today. For example, companies that make up some of the biggest ones on the S&P 500 index are seeing their rankings drop, like Exxon Mobil in 2019.
Investing in some of these disruptive technologies is a way to hedge against that risk. While it’s not going to be a smooth ride — it’s difficult to be entirely sure about who the winners and losers will be — focusing on innovative disruptions is a great way to shield your portfolio from the ever-increasing pace of dislocations.
Read the full “Outlook 2022: Charting Disruption” report from Global X by Mirae Asset.
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