To capitalise on innovations within financial markets, investors must adopt a long-term perspective as leveraging early-stage megatrends often demands a triumph of patience.
According to Capital Group, innovation is not just a buzzword but the “lifeblood” of investment success.
“It fuels growth, drives competitiveness and shapes the future of companies. But while innovation is essential, not all emerging trends are created equal,” the firm said in a recent outlook.
Emphasising that patience is not merely a virtue but a sound investment strategy, Capital Group has identified four megatrends that investors should closely monitor in the coming years.
Collaborative robots emerge from AI revolution
While early stock market winners in the field of artificial intelligence (AI) have been concentrated in the tech industry, particularly in sub-sectors like semiconductors, cloud infrastructure and software, the use of AI is poised to extend well beyond generative chatbots and have lasting impacts across many industries.
“As interesting as I find large language models like ChatGPT, I suspect AI-powered robots could have an even bigger economic impact over the next decade — with their applications used everywhere from homes to factories to hospitals,” said Mark Casey, equity portfolio manager at Capital Group.
For instance, while Amazon's initial robots designed to select items and pack them into shipping boxes had high failure rates, the company's new ‘Sparrow’ robot can now pick and pack two-thirds of the 100 million products in a typical Amazon warehouse, completing each task in just seconds.
Looking at healthcare, Casey said companies are also pairing AI with robotics to improve the success of surgeries and diagnostics.
“Companies that benefit most from advances in robotics may be spread over a broader set of industries. I want to invest in companies at the forefront of using advanced robots to improve client experiences, efficiency and profitability,” he said.
Healthcare innovation maintains a hot streak
Noting that obesity drugs have garnered recent headlines in the healthcare space, equity portfolio manager at Capital Group, Rich Wolf, believes opportunities for innovation across the broader sector are ripe.
Namely, companies are actively pursuing therapies and technologies to treat, and possibly cure, major diseases and improve people’s lives.
Wolf highlighted two rapidly advancing fields: cell therapy, which involves modifying cells outside the body before infusing them into patients, with current developments targeting diabetes, liver disease, and heart failure, and new gene therapies opening up opportunities for many pharmaceutical and biotech firms.
“Significant hurdles remain for widespread adoption of these technologies, and not all innovations will succeed. But the future of health care is exciting, and the potential for value creation over the next decade appears promising,” he said.
New markets emerge as shifting trade winners
Capital Group further pointed to opportunities arising from shifts in global trade and supply chains in coming years, particularly as many companies have adopted a “China plus one” strategy on the back of rising geopolitical tensions and logistical issues during the COVID-19 pandemic.
According to equity portfolio manager at Capital Group, Brad Freer, this has resulted in emerging markets like India, south-east Asia and Latin America benefiting from new trade partners and opportunities. For the US-based firm, Mexico is set to be a prime beneficiary of nearshoring.
“During my recent trip to Monterrey and Tijuana, I witnessed multinational companies like Carrier and Kia building factories to take advantage of the low-cost and efficient labor force,” Freer said.
He added that these multi-million-square-foot facilities, each employing thousands of workers, reminded him of the early days of China’s manufacturing boom.
“I’ll be looking to invest in businesses that could benefit from this change.”
Agriculture to undergo industry-wide evolution
Companies are also exploring innovative solutions to revolutionise agriculture and the industries it impacts.
One trend that equity investment Gigi Pardasani is following is precision agriculture, which involves the use of high-tech tools to grow crops more efficiently.
“Farmers armed with cutting-edge technology using machine learning, geolocation and sensors are able to make smarter decisions in the field.”
According to the investment analyst, those who have already embraced precision agriculture have seen up to 30 per cent greater productivity through reducing passes on the field and improved soil.
Noting that real-time data has been a “game changer” for many farmers, with AI poised to drive further improvements, Pardasani said that the agricultural cycle may require patience, but the developments are promising.
“I believe these are multi-year shifts that long-term investors should have on their radar.”
