Investing in innovation can supercharge your portfolio

Over the past few years, disruptive ideas, innovations and economic forces have reshaped the way we invest. Accelerating these forces is the COVID-19 pandemic and its immense effects on the economy, technology, government and society. An important focus in today’s investing industry has emerged as a powerful way to not only keep up with the change, but to benefit and profit from it: investing in innovation or “thematic” investing.

Broadly speaking, thematic investing is the approach of taking advantage of future trends while avoiding fads. Thematic investments take a top-down approach, providing investors an opportunity to generate alpha (excess returns) by looking at global trends and innovation. Its forward-looking approach stands in contrast to an investing strategy that relies heavily on market capitalization to determine weights in a portfolio found in popular index funds and ETF’s. Fundamentally, the objective of thematic investing is to not only generate superior returns but to evolve from traditional index investing that sometimes misses opportunities in emerging technologies and companies. According to research by Ark Investment Management LLC, focusing on the top technology platforms and themes should generate more than $50 trillion in business value and wealth creation over the next 10 to 15 years, giving today’s investors an opportunity to significantly capitalize and reap future gains investing in innovation and global themes.

Clean and green:  The structural shift in global energy production and usage is accelerating. Clean and sustainable energy is here to stay, and companies involved in renewable energy production, storage and smart grid implementation stand to benefit. Adding more tailwinds to this growth area, many developed countries and governments have subsidized their success, with billions being invested to continue the transformation away from carbon fossil fuels. Think electric vehicles, battery technology, solar, wind and lithium mining as examples.

Health tech, genomics, and the future of health care: Science and technology are enabling profound and transformative changes in health care. While “genomics,” “enhanced longevity” and “telemedicine” are the current buzzwords, we think that, more broadly, emphasis should be placed on the “care economy.” People are living longer, and quality of life expectations are rising. Instead of narrowly thinking about traditional health care, we also look for high-growth candidates from the broader “well-being” sector. Think telemedicine, gene sequencing and immunotherapy.

Remote working, e-commerce and cloud computing:  The lockdowns required to contain the COVID-19 virus moved our work lives to our homes. It is not clear whether the work-from-home trend will continue. The physical world will cede some ground to the digital world or “metaverse.”  Areas of opportunity are wide-ranging, from cloud computing, virtual networking, e-commerce, social media, video games and cybersecurity. From Zoom to Minecraft to TikTok, how wide swaths of people spend their time (and money) has changed and will continue to evolve, which present significant investment opportunities.

Artificial Intelligence and Big Data:  Artificial Intelligence touches us daily, from simple Internet searching to mobile directions and streaming TV. Companies focused on acquiring and interpreting as much data as possible have proven to be more adept at enhancing their offerings and improving their targeting. We expect significant growth in enterprises focused on creating efficiencies in data mining, analysis and storage. Think autonomous vehicles, smart homes and Internet of Things.

Blockchain, cryptocurrency, and financial technology:  The emerging financial technology sector has transformed staid businesses like lending, insurance and banking into exciting and innovative places to invest. Mobile payments, digital wallets and peer-to-peer lending should revolutionize the financial sector, which impacts every sector of the global economy. With blockchain technology, the rise of cryptocurrency has upended the view of currencies and stores of value. The idea of a “decentralized” financial system has immense potential as well as risks. We think cryptocurrency is here to stay and should be part of a well-diversified portfolio.
Be a trend follower: Add Innovation and Thematic to your portfolio: Investing in exciting trends and innovation is becoming far easier for the average investor. Many firms and thought leaders are happy to share their most up-to-date ideas. Whether it is Cathie Wood of Ark Investments who shares her trades daily, or Global X creating a new ETF any time they feel a catalyst to merit it, there is no shortage of good investment trends to follow. Investment advice has never been more readily available and transparent.

Adding thematic and innovation investment ideas to your portfolio should always be within the context of a good financial plan, proper risk tolerance assessment and your tax bracket. Work with your financial planner and wealth manager to structure a forward-thinking portfolio that makes sense for you. Done properly, a well-diversified portfolio that includes future thought leadership targeted to innovation will help you meet your long-term investment goals. Happy returns!

There are risks involved with investing which may include market fluctuation and possible loss of principal value. Particular investments may not be suitable for certain situations. Carefully consider the risks and possible consequences involved prior to making an investment decision.