It took decades for the telephone to reach 50% of households, beginning before 1900. It took five years or less for cellphones to accomplish the same penetration in 1990.
Rita Gunther McGrath, Harvard Business Review
It is apt to say that we live in the age of disruption as new technologies are adopted at a much faster pace than they used to.
This also means that growth themes can materialise quickly, and we do not need to wait for a long period of time to reap good returns on our investments.
There’s the concept of S-curve in technology whereby adoption hits an inflection point and starts to accelerate exponentially. There are two good timings to ride on a new technology trend and they are at the Early Adopters and Early Majority stages. The risk is too high when the technology is too nascent, and the reward has diminished if you go in too late.
Given the speed of innovation and adoption today, I think you would be able to reap good investment returns in 5- and 10-years windows if you invest in trends that are in the Early Adopters and Early Majority stages respectively.
I have identified 5 important technological trends that are currently within these two stages; 3 of them are in the Early Adopters stage and 2 of them are in the Early Majority stage. I will also suggest a relevant thematic ETF that you can invest to ride on these trends.
3 Technological Trends in the Early Adopters Stage
#1 Artificial Intelligence
The favourite artificial intelligence (AI) story often starts with IBM’s Deep Blue defeating chess master Garry Kasparov in 1996. And in 2016, Deepmind’s AlphaGo defeated the world’s best Go players even though it was believed to be much harder for AI to learn Go. However, artificial intelligence is not just about playing games and beating humans. It has many practical applications which are already used today in our everyday lives.
One of the most matured artificial intelligence applications today is in the field of computer vision. Computers can achieve 99 percent accuracy in identifying images, a feat that is better than humans. This is a key technology for self-driving cars and facial recognition for the purpose of security management and even ads targeting.
Not only can AI detect images, they can generate them too. The boy in the photo below doesn’t exist and it was generated by the computer:
We have many virtual influencers today too. Imma is one of them. Her photos are generated by AI and it is hard to tell them from real people!
AI generated content goes beyond images to include text and music. You can use OpenAI’s GPT-3 to write articles or OpenAI’s Jukebox to generate music.
AI has also been used by big tech companies in their products and services. You would probably be familiar conversing with Siri on Apple products or Google Assistant on Android. These conversational interfaces utilise natural language processing (NLP), a branch of artificial intelligence. You can ask your smartphone to play your favourite songs or to remind you of the day’s schedule and it understands what you say, without you having to input keywords.
Netflix and Spotify use AI to learn about your taste and recommend movies and music to you. E-commerce companies like Amazon and Alibaba deploy AI to learn about your preferences and recommend items to you. These intelligent systems are able to personalise the content for different customers, a process known as active learning.
Another example is Facebook’s newsfeed. It uses machine learning algorithms to predict which posts you would be most interested in seeing.
The list goes on.
AI is more than this and I believe we are only scratching the surface. The potential is limitless, and the implications are scary too. But there’s no going back.
If you believe in the future of AI, you can consider investing in an ETF like Global X Robotics & Artificial Intelligence ETF (BOTZ), which holds a collection of different companies in the AI and robotics space.
#2 Genetic Engineering
Imagine curing previously incurable diseases by editing your genes. With new technologies in genetic engineering, these are no longer simple science-fiction ideas – they are possible realities. Genetic engineering is the process of editing specific parts (genes) in the DNA sequence to change or add specific traits.
But before we can edit our genes, we need to understand the structure and map it out. The Human Genome Project has created the biggest knowledge and database about the DNA sequence of humans and it has helped us advance our understanding in genetics.
It used to cost $100,000,000 to sequence the human DNA in 2001. Now it costs less than $1,000. I believe the cost will go down further and every human would be able to have their own DNA sequence mapped. We will be able to know our susceptible or hereditary diseases and take prevention measures against them. It could also help us detect signs of cancer and edit away the DNA mutations.
One of the first mass applications made possible by genetic engineering is our Covid-19 vaccines. It uses mRNA to ‘message’ our DNA to identify coronavirus as hostile so that our immune system can eliminate them.
As of now, genetics are still an infant science, and can be difficult to understand for the layperson. However, the potential that it holds will make genetic engineering a huge market for investors to take notice of.
The easiest way to participate is to invest in ETFs such as ARK Genomic Revolution ETF (ARKG) because analysing individual biomedical stocks can be very daunting for someone who doesn’t understand biology and genetics.
#3 Space Exploitation
Elon Musk is a firm believer that in order for our species to survive, we must become a multi-planet society and has stated that he would like himself to die on Mars, just not on impact. It is very possible humans could colonise the Moon and Mars in time to come.
But Musk is not alone. Jeff Bezos’s Blue Origin wants to set up a settlement on the Moon too. He said water ice on the Moon can serve as a water source as well as fuel for rocket (by splitting it to hydrogen and oxygen).
The Moon is also rich in Helium 3 and could supply Earth with an inexhaustible source of energy without damaging the environment.
On the other hand, Elon Musk is confident that SpaceX will land humans on Mars by 2026 and send a million people there by 2050.
It is a space race between the two billionaires to see who can accomplish the audacious goal of space colonisation.
For now, I cannot imagine living on another planet. But space tourism is something I can accept.
On 11 Jul 2021, Virgin Galactic made the first spaceflight with its founder, Richard Branson, onboard.
Just 9 days later, Jeff Bezos went onboard Blue Origin’s craft and went for a space trip too.
These events set the stage for space tourism to come. It currently costs $450,000 (increased from $250,000) for a seat on Virgin Galactic. I believe the prices will come down in the future and allow more people to afford space travel.
Space tourism is another area that will open up in the coming decades and we can expect to see regular flights taking off from Earth and heading towards Moon and Mars. People would also begin to live on temporary basis on both planets, although it might be a few decades before people would start settling on either.
Space exploitation includes using the space to house our satellites. Union of Concerned Scientists (UCS) said there are 6,542 satellites as of 2021 and this number will only go up.
SpaceX alone has already launched 1,735 Starlink satellites to the sky and the target is to have 42,000 of them up there. It will be the world’s largest internet provider in time to come, especially useful for those living in remote areas with no fibre optic connection. Starlink broadband is currently available and it costs $499 to buy the satellite dish and a monthly subscription of $99 per month to enjoy a download speed between 50-150 Mbps.
Since 2004, satellite bandwidth costs have dropped by about 40% every year and ARK’s research says that the cost of bandwidth could fall even more in the next five years. Three billion people don’t have access to the internet today and Starlink’s satellite-delivered broadband might change that.
Human’s domination of space is no longer a dream. It would be one of humankind’s greatest achievements to be able to create a settlement beyond planet Earth. ARK Space Exploration & Innovation ETF (ARKX) would be your best investment choice for this vision.
2 Technological Trends in the Early Majority Stage
#4 Electric Vehicles – Lithium is the new petroleum
Tesla is like the new Apple for cars, and it has revolutionised the electric vehicle (EV) industry. Today, there are many EV companies hot on the heels of Tesla. We have 3 types of companies that are into EVs:
- Dedicated EV startups such as Nio, Xpeng and Li Auto
- Automobile companies such as Ford, BMW and Volkswagen
- Tech companies such as Huawei, Xiaomi and Apple
The competition is going to be fierce but they all need one thing – batteries. Battery technology has matured and storing enough power to give a driving range of 300-400 miles in a single charge is common now. In fact, the adoption of EV is highly dependent on battery technology.
Lithium is the key material to manufacture EV batteries. It is projected that the demand for lithium (due to the big business pivot to EVs) from 2023 onwards would outstrip the supply, even as production capacity increases.
Lithium is the new petroleum and it would take a lot more investments to realise the dream of electrifying all our cars.
This trend is happening now as major automobile companies have pledged to go full electric: for example, GM and Volkswagen have committed to produce all-electric vehicles in the next five years. Internal Combustion Engines (ICE) would be relics in time to come. I believe it is likely the next car we buy is going to be an EV.
The world needs more lithium and one way to participate in this trend is Global X Lithium & Battery Tech ETF (LIT) which invests in the full lithium cycle, from mining and refining the metal, through battery production.
If you’re bullish on EVs, I broke down the key players previously:
#5 Clean Energy
Clean energy is electricity produced from renewable sources, such as wind and solar power. These sources produce pollution-free energy and do not contribute to climate change. The demand for clean energy rose exponentially in recent years, due to the increasing awareness of climate change and its consequences and also because of better economics.
There are two main clean energy sources – wind and solar power. The costs for photovoltaic (PV) cells, which convert sunlight into electricity, and wind turbines, have gone down significantly. Below is a chart comparing the levelized cost of energy (LCOE) (measures how much it costs to generate electricity for a generating plant over its lifetime) between non-renewable and renewable energy sources. For countries like India and China, the cost of wind and solar energy are lower than coal and gas power.
The cost of clean energy will continue to go down and the issue of cost has been resolved.
The second hindrance to clean energy is the political will to combat climate change. Donald Trump withdrew from the Paris Agreement while he was in office. He wasn’t keen on any climate change policies and that slowed the transition to clean energy during his term. Joe Biden got the U.S. back into Paris climate accord hours after he was sworn in as the President. He set a goal to reach 100 percent carbon pollution-free electricity by 2035.
China’s president, Xi Jinping, has pledged to the climate change cause and aims to achieve carbon neutrality by 2060. China, being the factory of the world, has been a major carbon contributor. A massive shift towards clean energy sources would be a big push to the industry. You can consider investing in Invesco WilderHill Clean Energy ETF (PBW) to get into the burgeoning clean energy industry.
How to build a portfolio to capture thematic trends
Roboadvisors have gained popularity due to their convenient approach to investing. Knowing that some investors are keen to invest in themes, Syfe has created a new ETF portfolio builder known as Syfe Select.
Using Syfe Select, you can now complement your core portfolio with thematic ETFs, with the objective of boosting your overall returns.
I see this as a barbell approach in structuring your portfolio. This concept was popularized by Nassim Taleb whereby you invest 90 percent of your capital in safe investments while betting the remaining 10 percent on riskier ones.
Safe and risky investments can be subjective. In this context, I will define safe as a well-diversified portfolio of stocks and bonds. Syfe’s portfolios such as Core Defensive, Core Balanced and Core Growth belong to this category.
The riskier investments would be the thematic ETFs that I have mentioned above. Remember, these thematic ETFs are not meant to buy and hold forever but more to get in early on the technological S-curve and to sell them once the maturity sets in.
- Global X Robotics & Artificial Intelligence ETF
- ARK Genomic Revolution ETF
- ARK Space Exploration & Innovation ETF
- Global X Lithium & Battery Tech ETF
- Invesco WilderHill Clean Energy ETF
The good news is that you can find these ETFs on Syfe Select and can conveniently build your own ETF portfolio with no additional cost. You can include up to eight ETFs in your portfolio and decide your asset allocation.
Syfe also shows you the top holdings, sector exposure, geographical allocation, and past returns of your created portfolio.
Syfe charges the same fee of 0.35% to 0.65% per annum regardless of your portfolio composition. There are no brokerage fees when you buy and sell these ETFs.
All in all, there are over 100 ETFs available on the platform. Those highlighted above are the ones I believe represent 5 technological trends that are still at the early stages of the S-curve and are more promising.
But beyond these ETFs, Syfe Select has a broad range of other investments to choose from. These include ESG plays, factor ETFs (value, growth or momentum), and those focused on specific regions like China and emerging markets.
Feel free to browse the ETFs that Syfe offers and use this link to sign up for an account if you are not already a customer. You can use the promo code DRWEALTH to enjoy zero management fees on your first $30,000 investment for 3 months.
This is a sponsored article by Syfe but the views belong to the author. This shall not be constituted as investment advice. This advertisement has not been reviewed by the Monetary Authority of Singapore.