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Investing in Tomorrow's World

In an age of rapid transformation, where are the long-term opportunities for investors? We look at the innovations on the radar of the experts

From the South Sea Bubble onwards, through the advent of canals and railways to today’s internet-led world, stock markets have risen or fallen by investors’ success or failure to anticipate the next big developments.

Never has that been truer than now, when technological innovations are tumbling over one another at an accelerating pace in their promoters’ eagerness to transform and disrupt traditional industries.

We still need to communicate with one another, but in addition to letters or telephones we use email and smartphones. We still need transport, but cars, buses, trains and planes are increasingly driven by computers - to the point where driverless vehicles are starting to revolutionise the motor manufacturing industry.

An ever-evolving world

Matthew Bennett, NFU Mutual Investment Manager, says: “The investment world is always adapting – that’s what it does. Stock markets are supposed to be forward-looking, allocating capital to areas where people are looking for growth. So it’s sort of business as usual, but the pace of transformation has picked up in the last ten years with the advances in technology, big data and digitalisation.”

This brings fresh challenges for NFU Mutual when managing our customers’ money. “We have continued to buy for the long term,” says Bennett, “putting our faith in the companies that we invest in. Not embryonic businesses, but listed businesses with proven concepts. They themselves invest in early-stage enterprises. A pharmaceutical company will buy an early-stage drug company when it has shown what it can do and is worth a few million pounds.”

The role of big data

The management consultants at McKinsey & Co have argued that big data could be a key factor in future investing.

The analysis and use of big data, the trail left by web searches, credit cards and smartphones, is transforming industries. This creates increased potential reward for investors, as well as greater risk of loss. The McKinsey Global Institute estimates that applying big-data strategies to better inform decision making could generate up to $100 billion in value annually across the US healthcare system, by optimising innovation, improving the efficiency of research and clinical trials, and building new tools for physicians, consumers, insurers, and regulators.

While electric power and driverless technology have been capturing headlines in the transport sector, big data’s contribution has stayed largely below the radar. In 2012 IBM, Sweden’s Royal Institute of Technology and the Stockholm transport department used big data to revolutionise the city’s traffic flows, estimate how long it would take to travel from point to point and advise alternative routes. Now, through Google Maps, Waze and other providers, this routinely helps millions of travellers in cities across the world.

Perhaps the world’s biggest numbers game is finance, so understandably big data has been playing an important role in the latest advances here too. Credit scoring, gathering customer information, loyalty schemes, and the management of both investment and risk have all been impacted.

Artificial intelligence

Having amassed the data, bank managements are turning to artificial intelligence (AI) to exploit it. They are also investing into new technologies including blockchain, a ledger system which stands behind the coding for bitcoin, but will have more wide reaching affects.

AI is enabling healthcare computer systems to mine data and recommend treatments. “Electronic health records are like large quarries where there’s lots of gold, and we’re just beginning to mine them,” says Dr Eric Horvitz of Microsoft Research. It is not very different from what Amazon.com has been doing for years: using AI to suggest purchases based on what people have bought in the past. Google, Microsoft, and Apple have followed suit with huge AI investments.

AI is at the heart of the multi-billion pound push to flood the world’s roads with driverless cars, potentially this century’s biggest disrupter. It should remove drunk driving and slash accidents from human error. If we are willing to trade car ownership for driverless taxis, huge swathes of parking space may be released.

What could the impact be?

These changes have massive investment implications, not just for the motor industry but also alcohol, insurance and public transport. Freight costs are already being reduced by drivers handing over to their “automatic pilot” once they reach the open road. Soon the drivers may not be needed at all.

Bennett points out that ecommerce is another source of disruption that is producing winners and losers. “Bricks and mortar retailers have struggled because consumers are spending more online,” he says. “The property market has had to change because of that, with greater emphasis on out-of-town warehouses and distribution centres rather than traditional high streets.”

So these sweeping technological advances are not necessarily good news for investors. As with the early days of railways and canals, stock market valuations are liable to be overblown, corrected and re-rated again.

That is why there is more need than ever to look beyond the immediate noise to assess longer-term outcomes and make careful choices.

YOU NEED TO KNOW

  • The value of investments can fall and you may get back less than invested.

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