In 1955, the average lifespan of an S&P 500 company S&P 500 was 61 years. By 2015 this had fallen to just 17 years2 and estimates are that imminently this is shrinking to 12 years imminently, according to George Saffaye, global investment strategist on the Mellon Mobility Innovation strategy.
Saffaye notes business models are increasingly being "overhauled," citing Uber and Airbnb as two leading examples of thriving "asset-light" models; likewise, traditional industry categories are merging. Is Amazon a retailer or a technology company; is Alphabet (Google) a tech firm or a communications service provider? To take advantage of these industry and company changes, Saffaye investors have twin opportunities: harness the disruptors or the beneficiaries of their disruption.
One such example is blockchain technology.3 Saffaye expects the economic impact of blockchain to explode from US$200m in 2017 to US$276bn in 2025 and a mammoth US$3.4 trillion by 2030 – just 11 years away.4 While some assume its biggest investment area of influence will be in financial services, there are (very) few sectors blockchain will not impact, Saffaye notes, highlighting areas from utilities and medical, to diamonds and fishing.
"If wanted to track any product from its origin the whole way to its end point, avoiding an area or type of company that is associated with something negative, there is no better way to check that other than the blockchain." Saffaye notes this might be of particular interest for those with an ESG focus.
He says the E.coli outbreak in the US, traced back to a source of Californian romaine lettuce, could have been identified in "minutes or seconds" and then immediately withdrawn rather than the entire country assuming all supplies were dangerous.
Yet describing the Gartner Hype Cycle5, Saffaye points out that often the true development of a technology comes after the initial excitement has died down, giving the example of an electric car company.
"After the initial hype, they may run into execution issues and challenges. The excitement wanes and the reality creates disillusionment. It happens with a lot of technologies because they don't evolve fast enough; autonomous vehicles are not going to be here for mass deployment in 24 months. But once initial hype wanes, only then do we typically start to see truly sustainable innovation," he says.
Then as the cost of a technology drops in price, it generally skyrockets in adoption rates, he says, accelerated by simultaneous developments taking place across other market areas. For example, with respect to EVs, beyond the auto and auto parts sectors, smart grids, infrastructure and communication networks are all part of the story.
Saffaye cites a Bloomberg headline that claims the German car industry is pumping US$45bn into EVs, and points out "that is just one headline from one country – there will be plenty more elsewhere".
As he highlights: "This new innovation will be an incredible opportunity because doesn't just affect one industry: automotive, technology, industrial, materials, energy.
"Alliances will form because the competitive landscape has changed. Daimler BMW is now competing with Amazon, Google and Apple, even though none of those companies want to get into cars. But they do want to get into the companies that will drive the direction of how cars are built and how cars are used and that does create a challenge for the automotive manufacturers. Whether that will be a symbiotic relationship or not, remains to be seen."
He says Mellon's active, style-agnostic, global approach, interrogated by a team of career analysts is well-placed to identify who the leaders of this evolution will be.
"Whether it's blockchain, mobility, internet of things, global infrastructure… all these opportunities give us the ability to invest in those that buck the trend of slower global growth. Embracing innovation and disruption is the only way you are going to be able to generate alpha in certain areas of the market."
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 CBInsights, published December 2016
3 A system in which a record of transactions made in bitcoin or another cryptocurrency are maintained across several computers that are linked in a peer-to-peer network.
4 IEA as at 5 November 2017, Global Market Insights as at 1 February 2018, Mellon analysis as at 15 February 2019. PB: Petabytes, EB: Exabyte, ZB: Zettabyte.
5 The Gartner Hype Cycle is a graphic representation of the maturity and adoption of technologies and applications.
* Mellon was formed on 31 January 2018, through the merger of The Boston Company and Standish into Mellon Capital. Effective 2 January 2019, the combined firm was renamed Mellon Investments Corporation.
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Mellon was formed on 31 January 2018, through the merger of The Boston Company and Standish into Mellon Capital. Effective 2 January 2019, the combined firm was renamed Mellon Investments Corporation.