An increasingly connected world is leading to huge increases in data consumption. According to Jonathan McMullan, Newton's global communication services analyst, many telecoms operators will continue to struggle monetising this growing demand for data due to the large increases in network capacity (supply) and the difficultly in meaningfully differentiating an increasingly commoditised service. These factors have led to a lack of pricing power and intense competition amongst telecoms operators.
Over the next five years 5G networks are expected to deliver faster, more responsive and more reliable mobile data connections. However, McMullan is sceptical that the technology will materially improve the fortunes of most telecom operators, adding that it is unclear which new mass-market services 5G will enable, in the way that 4G did for video and music streaming.
In contrast, he believes that high-quality, differentiated content will continue to benefit from improving connectivity and increasing smartphone adoption. McMullan points to the music industry, which is enjoying a resurgence as adoption of streaming services such as Spotify, Apple Music and Amazon Music become more widely adopted. These services are convincing consumers to pay for premium subscriptions by offering easy-to-use interfaces, curated playlists and extensive choice.
According to McMullan, the runway for growth for the recorded music industry remains significant, having only returned to growth in 2015, after more than a decade of decline. The number of people paying for music streaming services globally topped 176 million last year, with some anticipating that this could grow to over 350 million users within the next 24 months. McMullan believes that there are several attractive investment opportunities which offer exposure to this multi-year growth trend.
While technology continues to disrupt the music business, there have also been some rapid technological advances in the healthcare sector recently, according to global health-care analyst Stephen Rowntree. He points to two healthcare areas to watch closely over the next two years: advances in human genome sequencing and in more targeted treatments. Both trends are benefitting from the huge amounts of patient data that is now being generated allowing health care to be better tailored or personalised to the individual.
Rowntree points out that human genomes can now be sequenced within a couple of days for less than $1000. This is not only transforming a range of health-related areas, but also enabling artificial intelligence to be used to deliver faster and more accurate solutions. He also cites an example of global flu vaccine companies shifting from using egg-based vaccines to cell-based vaccines, which have proven to be more effective.
At a time when the government is under pressure to increase its healthcare spending, Rowntree says that patients will soon be treated more as individual consumers, with the range of personalised treatment options set to increase going forward.
Commenting at a wider investment level, both analysts highlight the importance of remaining focused on company fundamentals, valuations and ESG considerations in order to identify attractive investment opportunities and avoid both over-hyped and structurally-challenged areas.
1 Investment Managers are appointed by BNY Mellon Investment Management EMEA Limited (BNYMIM EMEA) or affiliated fund operating companies to undertake portfolio management activities in relation to contracts for products and services entered into by clients with BNYMIM EMEA or the BNY Mellon funds.
2 BBC. Streaming is music's biggest money-maker. 24 April 2018.
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