One of the biggest challenges facing investors at the moment is the rapidly increasing pace of change in a world where companies are being disrupted and displaced at a startling rate. Disruption is occurring in a host of industries for a wide variety of different reasons, but regardless of the specific cause, disruption is a key feature of our current economic landscape and investors must consider its impacts.

What Does Disruption Mean For Us?

Consumer choices paint a stark picture of how rapidly technological innovations can become ubiquitous. While television took several decades from its invention to become a fixture in American households, the internet took just nine years to become a feature of most people’s everyday lives. In January 2014, mobile gaming app Flappy Bird became a global obsession, netting its developer up to $50,000 per day in advertisements and sales, before being removed permanently by the developer just weeks later, owing to his guilt about the app’s overuse and addictive qualities.

However, it is not just technology that it is creating a rapid pace of change. Our changing climate, coupled with increasingly prominent environmental activism, has the potential to act as another powerful disruptor to the world’s most significant industries. Clearly, the energy sector will be affected, given the necessity for the world to move away from its reliance on fossil fuels, but climate change is also likely to affect the transport sector, consumer sectors like fashion and food, and any company involved in building and designing physical infrastructure. Already, companies are having to consider where to build their facilities, with research suggesting that major cities like Bangkok and New York may see frequent flooding by 2050.[1] Over the coming decades, a lot of financial capital will be invested in countering climate change, and as long-term investors we seek to find companies that will be on the right side of that equation.

All the ways in which disruption affects companies are magnified at the global level. The high rate of technological innovation means that traditional sector definitions are starting to break down. Technology used to be a sector in its own right, but with technological improvements changing every industry on the planet, from finance to health care to education, what’s going on in technology has the potential to affect every investment we make, and therefore we must stay informed and alert to new technological disruptors.

For investors, this means a paradigm shift. While investment managers once sought reliability and stability in their long-term investments, the focus now lies in companies that are able to swiftly pivot to new business models and products. CDs were invented in 1982, but in 2019 are functionally obsolete in many parts of the world, giving that product a lifespan of only a few decades. For any company that only made CDs, the last decade will not have been a fruitful one, and any investors in such firms would have been left without much to show for their outlay. We believe it is only companies that are able to embrace new technology with speed that will be able to thrive in a world so ruled by interference and innovation.

How Do You Cut Through the Noise?

At Newton, we have used themes for many years to help us understand a complex and changing world. We believe that considering the world through the lens of select investment themes, alongside rigorous bottom-up analysis, is the most effective way to find value in an economic landscape bursting with new entities and business models. The themes that we believe will be most instrumental in shaping the investment landscape over the coming years include:

  • rapid technological changes
  • the impact of China
  • the increasing power of consumers in a digitized world
  • the impact of climate change
  • demographic changes, especially in the emerging world

We see these ideas as indicative of long-term, structural trends which are likely to disrupt many industries and business models.

One of the core reasons we use thematic analysis to inform our investment decisions is that themes gives us perspective. It is easy to get bogged down in the details, worrying about what the market will do week to week, or even day to day. However, we want to consider the trends that will shape the world of investment and avoid being distracted by market noise, an approach that we believe is important in a world where each day throws up new drama.

How Will Disruption Affect the Financial Sector?

Financial services are by no means exempt from the effects of disruption. Digital financial services are coming to the fore, ageing populations and uncertain life paths are changing the pensions landscape considerably, and investors must try to find opportunities in an increasingly ‘noisy’ economic setting. We observe that the primary architects of disruption – technology and climate change – are already affecting the financial sector, with responsible and sustainable investment growing rapidly in popularity and new technology influencing everything from stock analysis to the dealing desk.

We also believe an increasingly disrupted world creates an opportunity for active managers. These changes disrupt industries and incumbent companies, which creates considerable uncertainty. Increased levels of uncertainty generally contribute to market inefficiency in the pricing of securities, which should create opportunities for active investors guided by long-term trends. The dispersion in returns can be particularly acute between those companies that are able to adapt and develop their business models in response to structural and technological changes, and those that are not. By analyzing these trends and understanding their implications, we believe we will be better placed to identify the companies that can thrive in dynamic markets.



Your email address will not be published.

Newton does not capture and store any personal information about an individual who accesses this blog, except where he or she volunteers such information, whether via email, an electronic form or other means. Where personal information is supplied, it will be used only in relation to this blog, and will not be collected or stored for any other purpose. Comments submitted via the blog are moderated, and, as a result, there may be a delay before they are posted.

Any reference to a specific security, country or sector should not be construed as a recommendation to buy or sell this security, country or sector. Please note that strategy holdings and positioning are subject to change without notice.

Important information

This is a financial promotion. Issued by Newton Investment Management Limited, The Bank of New York Mellon Centre, 160 Queen Victoria Street, London, EC4V 4LA. Newton Investment Management Limited is authorized and regulated by the Financial Conduct Authority, 12 Endeavour Square, London, E20 1JN and is a subsidiary of The Bank of New York Mellon Corporation. 'Newton' and/or 'Newton Investment Management' brand refers to Newton Investment Management Limited. Newton is registered in England No. 01371973. VAT registration number GB: 577 7181 95. Newton is registered with the SEC as an investment adviser under the Investment Advisers Act of 1940. Newton's investment business is described in Form ADV, Part 1 and 2, which can be obtained from the website or obtained upon request. Material in this publication is for general information only. The opinions expressed in this document are those of Newton and should not be construed as investment advice or recommendations for any purchase or sale of any specific security or commodity. Certain information contained herein is based on outside sources believed to be reliable, but its accuracy is not guaranteed. You should consult your advisor to determine whether any particular investment strategy is appropriate. This material is for institutional investors only.

Personnel of certain of our BNY Mellon affiliates may act as: (i) registered representatives of BNY Mellon Securities Corporation (in its capacity as a registered broker-dealer) to offer securities, (ii) officers of the Bank of New York Mellon (a New York chartered bank) to offer bank-maintained collective investment funds, and (iii) Associated Persons of BNY Mellon Securities Corporation (in its capacity as a registered investment adviser) to offer separately managed accounts managed by BNY Mellon Investment Management firms, including Newton and (iv) representatives of Newton Americas, a Division of BNY Mellon Securities Corporation, U.S. Distributor of Newton Investment Management Limited.

Unless you are notified to the contrary, the products and services mentioned are not insured by the FDIC (or by any governmental entity) and are not guaranteed by or obligations of The Bank of New York or any of its affiliates. The Bank of New York assumes no responsibility for the accuracy or completeness of the above data and disclaims all expressed or implied warranties in connection therewith. © 2020 The Bank of New York Company, Inc. All rights reserved.