December 5, 2019
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By: Grace Huang, Carmen Tang, Auritro Kundu, Maksim Piskunov, Stewart Boxall, and Dillon Culhane
2020 Vision
6.5 min read
A new year. A new decade. So, what’s coming into focus for investors? Here are some of the technologies, trends, travels and treatments that could emerge as potential opportunities over the next 10 years and beyond
Supercharging the Information Superhighway
By Grace Huang
Fifth generation (5G) wireless technology is at the centre of a controversial debate. Governments around the world are questioning whether the latest advance in telecommunications networks and those who build them pose a serious threat to their national security.
But make no mistake: 5G has already begun to roll out in some countries globally and will have far-reaching implications for investors in the next several years.
5G is crucial to the ongoing development of the digital economy. It is a vast improvement on previous wireless generations and will provide unprecedented bandwidth, speed and capacity for processing the increasingly complex data sets that are needed to fully enable innovations such as the Internet of Things (IoT), Artificial Intelligence (AI), Virtual and Augmented Reality (VR/AR), and automation.
According to IHS Markit, a global research firm, 5G has the potential to impact as many as 16 different industries globally and generate US$13.2 trillion in sales by 2035. This will create investment opportunities in several areas, including for builders of network towers and equipment, semiconductor chip makers, the telecoms, smartphone manufacturers, video game creators and many other consumer-focused companies.
Over the next 25 years, the U.S. and China are expected to account for 53% of the total average investment in cellular R&D and capital expenditures.
Competition among nations will also be fierce in the coming years. While South Korea was the first country to launch 5G mobile service in April 2019, over the next 25 years, the U.S. and China are expected to account for 53% of the total average investment in cellular research and development (R&D) and capital expenditures in the 5G mobile value chain, IHS Markit says.
All in, the global wireless industry is expected to gain hundreds of billions in incremental annual revenue over the next decade. This is in part because telecom firms may regain lost pricing power as the result of new opportunities in enterprise and industrial segments of the market, as well as increased consolidation.
It should be noted that 5G isn’t clear of caveats. Ongoing security concerns may continue to slow down the global 5G roll out, as might persistent worries about the huge upfront costs of building out the next generation of networks. Still, it’s hard to see a future without it.
Grace Huang is Associate Portfolio Manager at AGF Investments Inc.
Now, It’s Personal
By Carmen Tang
Giving someone a dose of their own medicine could take on a whole new meaning for investors now that the market for personalized medicine is starting to hit its stride. Nowhere is this truer than in the field of oncology where the science of genomics is pushing the global pharmaceutical industry towards a more targeted, less invasive new wave in cancer treatment.
It may take a while for personalized medicine and DNA sequencing to reach a critical mass, but the wait time may be worth it.
Advances in genetic testing, for instance, may soon result in a new standard for therapy selection in lung cancer patients, whereby tissue biopsies are replaced by the prick of a needle to determine a tumour’s unique protein biomarker and the drug most suitable for treating it.
Liquid biopsy tests, as they are commonly known, may improve monitoring of individual responses to certain drug therapies as well, including those that work by boosting a patient’s own immune system. Immunotherapy can cause tumours to grow larger before eventually shrinking as cancerous cells are killed, making computerized tomography (CT) scans problematic. But by tracking the amount of tumour DNA circulating in the blood, a patient’s response to the treatment can be accurately determined at an earlier point in time.
A simple draw of blood is also proving capable of detecting the recurrence of certain cancers in a timelier manner than current methods that also rely heavily on CT scans. In one such test, tumour tissue is sequenced to identify the most common genetic mutations found in a patient’s primary tumour.
By some estimates, these applications have a potential market value somewhere near US$21 billion, but that doesn’t fully consider liquid biopsy tests that may soon enable detection of cancer in asymptomatic patients.
It may take a while for personalized medicine and DNA sequencing to reach a critical mass, but the wait time may be worth it.
Carmen Tang is Equity Analyst at AGF Investments Inc.
Commencing Countdown
By Auritro Kundu
Commercial space travel is still a moonshot for most investors, but it is moving closer to lift off as the cost of space launches declines dramatically due to investments by a new era of billionaire-backed companies such as Space X, Blue Origin and Virgin Galactic. By 2040, the industry is expected to reach US$1.5 trillion, or 5% of U.S. GDP, up from US$385 billion in 2017, according to the U.S Chamber of Commerce.
The recent Virgin Galactic public offering sheds light on its “once-in-a-lifetime” spaceflight ambitions that will offer a luxury experience for the rich. The company believes its addressable market will reach 2.3 million people in 2023, which is just 0.1% of high-net-worth individuals (classified as exceeding $10 million in net worth). By 2023, Virgin Galactic is targeting five vehicles in operation, 270 annual flights, 1,565 passengers flown, and $250,000 fares per passenger – resulting in revenues of $590 million. As the business scales and costs improve due to manufacturers’ efficiencies and technological advances, Virgin Galactic ultimately believes it can target approximately 40 million individuals (with between one and US$10 million in net worth).
By 2040, the industry is expected to reach US$1.5 trillion, or 5% of U.S. GDP, up from US$385 billion in 2017, according to the U.S Chamber of Commerce.
SpaceX, meanwhile, has already agreed to take Japanese billionaire Yusaku Maezawa on a tourist trip to the moon with the mission expected in 2023.
The scope of the commercial space age will introduce reusable spacecrafts, new hybrid rocket motors, improved re-entry mechanisms, and miniaturisation of electronics – all key to driving costs down. Due to reusable rockets, the cost of space launches could fall by a factor of 100, according to research from Bank of America. Much bigger rockets can reduce costs further and could lead to other longer-term space innovations, such as intercity travel. If 10- to 12-hour long-haul flying times between global cities could be cut to two or three hours, there could be a market for such services, especially at the high-end bracket, ultimately impacting the airline industry.
It remains to be seen, however, what impact space travel will have on investors and their portfolios. But the countdown to finding out is on.
Auritro Kundu is Equity Analyst at AGF Investments Inc.
Closet Disruption
By Maksim Piskunov
There’s no question the role that technology has played in changing the habits of consumers in recent years. Whether it’s hailing a ride, or renting a vacation home, we buy, sell and rent things like no other generation and are constantly looking for new ways of transacting.
On this front, the next big wave of disruption may be ready to upend what’s in our closets. In recent years, Clothing as a Service (CaaS) or RE-Commerce (resale ecommerce) has become one of the fastest growing segments of the overall apparel and accessories market and it looks set to expand even further given a confluence of trends that go beyond just technological enablement.
First is the search for affordability and elevation of thrift as it becomes more difficult than ever for consumer incomes to keep up in a culture increasingly shaped by “influencers” with expensive tastes.
56% of 18-29 year-olds prefer retailers who offer something new every visit, according to a Global Data survey.
The second trend is the growing focus on sustainability as climate change concerns take centre stage in public debate. At least two-thirds of GenZ shoppers have made an eco-friendly purchase in the past year, according to a CGS survey. And faced with a backlash against excess consumption, some of the biggest fast fashion brands in the world now offer clothing recycling to maintain relevance.
There is also the growing desire for novelty and variety, with 56% of 18-29 year-olds preferring retailers who offer something new every visit, according to a Global Data survey.
As a result, second-hand apparel is growing in acceptance, particularly among younger shoppers. This, in turn, is fueling a growing luxury consignment market and has several clothing brands—both mainstream and otherwise—experimenting with more rental sales of their merchandise, as well as subscription services in hopes of creating greater loyalty and better margins.
Not everyone will benefit from this latest disruption. But those retailers who can get it right will be in good position to gain a bigger share of our closets.
Maksim Piskunov is Associate Portfolio Manager at AGF Investments Inc.
Nothing Artificial About It
By Stewart Boxall
A decade ago it was thought that a computer could never beat a master Go player. The very complex, 3,000-year-old Chinese game has more possible moves than the total number of atoms in the universe.
But then it happened. In early 2016, AlphaGo, Google’s artificial intelligence (AI)-assisted program, beat 18-time Go world champion Lee Sodol four games to one and just months later, AlphaGo Master, a more advanced version, played 60 professional Go players and beat them all.
Since that time, AI and related technologies such as machine learning, speech recognition and natural language and image processing has only become more advanced. Not nearly to the point of replacing humans in everything we do, but enough to perform very specific tasks better and much faster than us.
AI will be front and centre in several new investment opportunities and will also help investors increasingly with their decision-making.
In turn, it has become integral to enabling some of today’s most anticipated technological advances, including those that will shape our transportation, manufacturing, healthcare and investment industries for years to come. By 2025, the market for AI is expected to reach nearly US$209-billion from US$24-billion in 2018, representing a compounded annual growth rate of 36% over that period, according BrandEssence, a market research firm.
AI will be front and centre in several new investment opportunities and will also help investors increasingly with their decision-making. In fact, as complex as the game of Go is, the investment world is much more complicated, and machine learning, as well as natural language processing, is already helping asset managers integrate more alternative sources of data into their research.
This includes unstructured information such as satellite imagery of parking lots to gauge real-time supply and demand metrics, as well as earnings call transcripts to gauge executive sentiment.
And so, while AI remains far from ubiquitous, it has long passed Go and will have a growing influence on our lives over time.
Stewart Boxall is Manager, Technology Development at Highstreet Asset Management Inc.
The Looming Energy Transition
By Dillon Culhane
As climate change intensifies, momentum is gaining for swift action to reduce global carbon emissions. A major energy transition is necessary to reduce emissions intensity while satisfying rising worldwide energy demand. This transition will require billions of dollars invested in renewable energy, electrical infrastructure, battery technology, carbon capture and storage, and other potential solutions over the coming decades.
The most prominent sources of global carbon emissions are power generation (40%), and transportation (25%), according to the International Energy Agency. Progress has been made in many areas displacing coal-fired power with lower emission natural gas and renewables. Solar and wind power are cost-competitive with coal and gas-fired power in certain geographies, and both are expected to continue growing strongly. However, renewables alone cannot sustain baseload electricity demand in most jurisdictions without a dramatic breakthrough in battery technology. Thus, a combination of natural gas, hydro, and nuclear will remain mainstays of global electricity supply.
The most prominent sources of global carbon emissions are power generation (40%), and transportation (25%). according to the International Energy Agency (IEA).
For transportation, electric vehicles (EV) are an obvious solution for reducing emissions, but EV adoption varies dramatically by region based on government policies, subsidies, demographics, income levels, weather and range requirements. It is much more challenging to electrify heavy-duty freight (trucking, rail), marine shipping, and air travel, which will all rely on fossil fuels for decades to come. Continued improvements in fuel efficiency, the use of liquefied natural gas, and biofuels (from waste, animal fats, algae) can all reduce emissions intensity here.
Carbon capture and storage (CCS) technologies will also help in meeting net-emission reduction goals. These involve capturing and storing carbon, usually in underground geological formations, effectively creating negative emissions to offset sectors that are difficult to de-carbonize; such as certain industrial processes (cement, steel-making), heavy-duty transportation, and air travel.
While the energy transition doesn’t spell the complete demise of fossil fuels, it is clearly creating opportunities to benefit from increasing investment in renewables, batteries, and emissions-reduction technologies.
Dillon Culhane is Equity Analyst at AGF Investments Inc.
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