In the second article in this series, we look at the two remaining mega trends that offer Australian investors an ability to spot businesses that are growing naturally and will typically find it easier to earn higher returns on investment.
Mega Trend #3: The rapid pace of advances in technology
Trends in technology can be sustained and are structural in nature. Consider the smartphone: this pocket-sized computer and wireless communication device has become the largest technology platform the world has ever seen. The installed base of smartphones today is around 2.9 billion; and yet this will more than double by 2020 – with most of the growth occurring in developing countries.
The opportunities this will create for e-commerce, communication, social networking, healthcare, video, gamining and many other industries are endless. Even installed machine-to-machine connected devices, otherwise known as the “internet of things”, will grow from around 250 million today to over one billion by 2020. A company like NVIDIA Corporation in the United States, which is the market leader in the design of graphics processing units, or GPUs
Technological changes are also occurring in healthcare. Wearable devices that monitor aspects of your biochemistry and physiology can connect directly to your smartphone. This data can be aggregated on platforms, such as Apple’s HealthKit. Big data analytical algorithms can then be applied to help facilitate early detection of possible health issues on a person-by-person basis. Similar analytical techniques are being applied to human genetics to tailor personalized medical treatments to the individual characteristics of each patient. If there is one sensible conclusion we can make, it is that the delivery of healthcare in the future, will look very different to the delivery of healthcare in the past. With US healthcare expenditure at around 17 percent of gross domestic product – a level that is way too high and almost double the share of the economy that Australia spends on healthcare – the Americans are facing one of the largest “cost-reduction” opportunities the world has ever seen.
The emergence of such dominating new businesses such as Apple, Amazon and Facebook stems from the emergence of a new business model: The Online Technology Platform. The “platform” model has long been one of the truly great business models. We recently recorded a video with the ASX to explain these companies if you would like to learn more click here.
Mega Trend #4: Highly-accommodative monetary policy
Finally, we are arguably amid a multi-decade trend of highly-accommodative and coordinated monetary easing by many of the world’s largest central banks. Quantitative easing, or the direct buying of bonds in the open market – as it is known, has become the norm for central banks that control the monetary policies of economies that represent around half the world’s economic output.
Early in the last decade, Japan demonstrated the first experiment of quantitative easing on its economy.
Then, after the global financial crisis, the United States, the United Kingdom and the European Monetary Union followed suit.
This trend of highly-accommodative monetary policy has been very positive for stocks and may well continue to be for a period of time to come, despite ambitions by policymakers to wind down their bond-buying programs.
UK and European equity fund managers, such as Jupiter Fund Management, will likely do well should these accommodative policies persist.
For Australian investors, including many self-managed super funds, gaining exposure to some of these mega trends is not particularly straight forward. It is an enormous amount of work for an individual to identify the right individual stocks to buy that are well-positioned to benefit from these themes. Many investors use a small number of trusted fund managers to identify and monitor global themes and their subsequent investing opportunities.
How will you take advantage of these mega trends to grow your wealth?
You can read our part I on the Livewire site here: FOUR MEGA TRENDS: WHY CONSIDER THESE WHEN INVESTING IN STOCKS?
Andrew is responsible for managing the Montgomery Global Fund, ASX-listed Montgomery Global Equities Fund (ASX:MOGL) and global equity long/short strategy, Montaka Global Fund. Andrew oversees $500m in FUM.
Climate Change?. Most Australian Fund Managers are too complacent about this issue, although it is arguably one of the most significant 'Mega Trends' impacting the world today.