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Investing in Innovation

Creative destruction. Disruption. Revolution. All terms that have been used to describe the continual innovation that has occurred over the history of our world economy. Two hundred years ago, advancements in steam power, mechanization and electrification created massive shifts in labor allocation and mobility, human migration, population growth and economic output. Locomotives rendered stagecoaches irrelevant and automobiles displaced the horse and buggy as these, and many other technological advances increased societal prosperity and overall quality of life.

In today’s globalized economy, we see the same story being played out again and again as e-commerce has upended traditional retail, streaming video has caused upheaval among once-dominant cable providers and ride-sharing continues to marginalize the age-old taxicab industry. Every year we are learning of new technologies, breakthroughs and advancements as the rate of change continues to increase at a seemingly exponential pace. A 2017 McKinsey Global Institute report estimated that the disruptive impact of innovation would likely require 75 million to 375 million workers (3% to 14% of the global workforce) to change occupations by 2030. Additionally, McKinsey suggested that up to 50% of global work activities (representing nearly $16T in wages) had the potential to become automated in that timeframe, using technology that is currently available today.

How can this be? Massive capital investment continues to drive advancements in areas such as computer processing power, robotics, artificial intelligence (AI), energy storage and connectivity. These breakthroughs have created transformational opportunities in virtually every segment of the economy from agriculture and infrastructure, to medical services, manufacturing and defense. This continued investment shows no signs of abating; in fact, International Data Corporation estimates that global spending on AI and machine learning will grow from $12B in 2017 to $57.6B by 2021. If history is any sort of guide, we may be on the cusp of the largest productivity increase in the history of humankind.

Figure 1: Breakthrough Innovation over Time

Source: ARK Investment Management, Big Ideas 2019

Innovation begets further innovation and over time, becomes even more and more interconnected. Finding emerging market entrants and determining who will be future winners and losers is no small task, especially in the multitude of sectors and industries that are undergoing these dynamic changes. Many of tomorrow’s mega-cap titans are mere fledgling public companies today and extremely difficult to identify. As professional investment managers, the Capital Planning Advisors team is strategically introducing prudent exposures to these sorts of investment opportunities into our client portfolios. Additionally, we are also leveraging some of these very capabilities in and of themselves as we begin to incorporate AI and machine learning as part of our toolset to help source and select investment ideas that are becoming driving forces behind many of these broader technological advancements.

Figure 2: New Economies, New Opportunities

Source: ARK Investment Management, Big Ideas 2019

Over the coming months, our clients can expect to see some new additions into their portfolios that help to capture many of these exciting developments. We are pleased to provide these ideas, exposures and resources to our clients and welcome the dialogue that is sure to come. 

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