The last two years have brought untold disruption to global markets. With supply chain issues, an energy crisis, and the imminent threat of coronavirus all taking a major toll on global economies, we are continuing to see major change in global markets, change that could have an enduring impact on the way that we invest.
A thematic approach to investing is a way of gaining exposure to long-term investment themes, secular growth trends in an investing universe characterised by innovation and disruption.
Themes are an umbrella used to group stocks and funds from across multiple industries, united by what they contribute to that general trend.
From DeFi to Smart Manufacturing, below, we have selected some of the most exciting emerging themes in markets today:
DeFi – New Kid on the Block
What could the emergence of a major decentralised finance industry mean for global economies? How big could cryptocurrency become? Where is the market for digital assets bound?
An emerging theme known as decentralised finance (DeFi) – which allows users to buy, borrow, and invest in digital assets with no external regulation – is at the centre of this whirlwind of questions. DeFi exists within the public consciousness as cryptocurrencies, neo-brokers, and other forms and platforms for trading and using digital currencies.
With inflation rates set to increase, many investors are turning to DeFi as a way of hedging against central banks’ inflationary moves. As investors look for a way to obtain assets, crypto-heavy neo-broker firms like Coinbase have emerged with platforms that could provide mass access to cryptocurrencies. Though the Coinbase stock has struggled through 2021, it seems already to have become a darling of retail investors, earning the endorsement of faces like NBA superstar Kevin Durant. More importantly, analyst sentiment is bullish: MoffettNathanson analyst Lisa Ellis set a $600 12-month target, a 142% upside on its 21 December price.
Rival neo-broker Robinhood, a familiar face to the disruptive Reddit investor community, has also faced serious setbacks since its IPO in August of this year, its stock dropping almost 50% below its listing price. However, with big-name investors like Cathie Wood picking up shares in Robinhood as well as Jack Dorsey’s crypto-focused fintech company Block [SQ], there are encouraging signs that stocks exposing investors to the DeFi theme could be primed for a more positive outlook, if this investor hype continues.
Questions remain, especially considering the volatility of some of the theme’s leading stocks and industries through 2021 – but, if incumbent industries and companies can be disrupted, the future could well be bright for DeFi investors.
To explore some of these questions in depth, click through to find our eBook here.
Genomics: The cutting edge of biotech
None of us have gone untouched by the coronavirus. A global pandemic made the discussion of how we can protect our species against the threat of viral infection and disease, vital. Demand for the expertise and materials to vaccinate the world against the virus pumped resources into the biotech industry, which has popped over the last two years.
Since the beginning of the pandemic, some genomics stocks have soared, many of them becoming the most high-profile growth stocks on the market. Since the beginning of March 2020, the already-mature Pfizer stock has surged more than 80%, and BioNTech’s more than 700%. Moderna’s trajectory underwent an astronomical transformation as the pandemic – and the need to begin fighting it – took root, having surged more than 1,000% since the beginning of March 2020.
But the recent breakout in genomics stocks is by no means limited to major vaccine development. Ground-breaking biotechnologies engineered by firms like Twist Biosciences [TWST] (whose stock jumped almost 700% in 2020, and despite a drop is up more than 200% since January 2020) emerged. Twist helped pioneer the CRISPR-Cas9, an enzyme which allows for direct genetic engineering by targeting and removing sequences of DNA that contain harmful hereditary disease such as sickle-cell, potentially changing the face of disease treatment and prevention.
The theme also plays host to revolutionary cancer screening technology, which is also beginning to take off, according to Ark Invest’s Big Ideas 2021 report: undergoing the screening process has fallen sharply in price from $30,000 in 2015 to $1,500 in 2021, and by 2025 might be as low as $250. And as access to this life-saving tech increases, the market is likely to rapidly expand and open up further areas for development and investment.
2020 was a watershed year for the global genomics market, which jumped to grow 22.6% faster than its previous three-year average, and with so many sectors seemingly poised to take off, we could be set to see even further expansion moving forward.
To follow up on the subject and find further insights, read our eBook here.
Smart Manufacturing – The ‘fourth Industrial revolution’
The havoc that the pandemic wreaked upon supply chains across the world has had a major impact on the way manufacturing is evolving – as supply chain strains continue, automatic processes are beginning to take over the industry.
This emerging sector is known as Smart Manufacturing, which aims to streamline the manufacturing process by centralising the role of the tech involved, utilising data to enable machines to communicate with devices in other locations and conduct the entire process without the need for human intervention.
Currently, firms like Attabotics are trailblazing this quite possibly revolutionary tech by changing how supply chains work. Using automated robots that pick up, pack and ship items from factory warehouses so compact, they take up 15% of the space required for a traditional warehouse. The space’s innovation is about maximising efficiency, in turn cutting down on the time and costs involved in the manufacturing process.
At the heart of what is being heralded as the ‘Fourth Industrial revolution’ is 5G tech, one of the major catalysts for industry growth, projecting well for the tech’s pioneers (i.e. Samsung, Qualcomm [QCOM], Intel [INTC]). The tech will also rely on sophisticated AI systems for its success. Chip-maker Nvidia leads the way here, and is set to turn in a spectacular 2021, surging more than 110% year-to-date.
Estimated valuation of smart manufacturing market by 2026
The space has some major players, and with a market size $270.7 billion, it is already a major market. Even more encouraging for investors is that it projects to grow at a much stronger rate in coming years, expected to reach $461.8 billion by 2026, according to Statista.
The investible part of the space has turned in a solid track record this year: the Global X Internet of Things ETF [SNSR] has grown more than 27% over 12 months, comfortably outpacing the S&P 500 (23%). The fund offers exposure to semiconductors, computer hardware, and software developers. As Attabotics’ Andy Williams points out, investing in the space is about unearthing financial potential rather than high-grade tech: “You could have the fanciest robots in the world, but if they’re used on a traditional capital expenditure path, that’s not going to keep making you money”
To read more about investing in the space, read our Smart Manufacturing eBook here.
Autonomous cars – The future could drive itself
As the explosion of EV stocks like Tesla and Rivian this year may have made clear, we are in the midst of a motoring revolution. We could also already be on the cusp of another, with the driverless car era near at hand.
It could be a huge market: it is predicted that by 2030, 1/7 cars on the road could be operated by a driverless system, and the market for autonomous vehicles could be set to explode, expected to reach $556bn by 2026, according to Statista.
As it stands, LIDAR (light radar), the basis of autonomous vehicles’ all-important navigation systems, could be among the most important technology in this theme. LIDAR’s leading engineers, Luminar Technologies [LAZR] had a spectacular few months between November 2020 and February 2021, surging more than 200% – however, since the beginning of January, the stock has plunged more than 50%.
Estimated valuation of autonomous vehicles market by 2026
Not everyone buys it: Tesla’s Elon Musk could be an obstacle to the tech’s uptake, arguing that LIDAR is a ‘fool’s errand’, compared with the more affordable and more easily manufacturable camera-operated navigation system that Tesla’s autonomous vehicles will use. However, it is ultimately uncertain which of these technologies will become industry-standard, perhaps both.
As cars evolve and incorporate more and more computerised mechanics, the space is attracting the major players in the tech world. Although it has yet to announce it will be pioneering self-driving tech, Apple’s [AAPL] phones already use a form of LIDAR, and the tech giant plans to introduce its own electric vehicle, and Alphabet [GOOGL] also plans to make headway into the space.
With some of these huge names possibly preparing to leap into the space, the theme is loaded with exciting financial potential. Read more about autonomous vehicles, and discover what could become the major stocks to watch in this emerging market by clicking here.
Markets are changing, and with disruption continually redefining global economies, a thematic approach could offer investors a way to approach them that helps take advantage of the long-term trends shaping tomorrow’s world.
Opto’s mission is to provide investors with the information and resources to capitalise on these emerging trends – We hope you enjoy our Thematic eBook Collection!
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