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Thematic Investing: How to Invest in the Next Big Idea

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Thematic Investing: How to Invest in the Next Big Idea

Thematic Investing: How to Invest in the Next Big Idea

From clean tech to artificial intelligence, thematic investing provides exposure to disruptive innovations that underlie the next frontier of investing.

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In this infographic sponsored by Opto from CMC Markets, we identify the trends and investment themes that could reshape society and unlock future growth opportunities.

Long-Term Structural Growth Trends

Which four trends could define our future?

  1. Climate Change: Extreme weather disruptions, investment in green solutions.
    • Climate-related risks and their implications are gaining serious attention from governments, businesses, and investors. Consider how global government green spending has risen by nearly 40% since 2008, rising to $714 billion in 2022.
  2. Disruptive Technology: Exponential speed of technological advancement.
    • More technological progress is forecast to occur over the next ten years than the last 100 years combined. In fact, the computational capacity of the fastest supercomputers has skyrocketed from 17.6 quadrillion floating-point operations per second in 2012 to 1,100 quadrillion in 2022.
    • Floating point operations are a form of measuring the performance of supercomputers, some of which are one million times faster than a laptop.
  3. Demographic and Social Change: Aging populations.
    • From China to Europe to the U.S., a great demographic transition is underway. The global elderly population, defined as those 65 years and older, is anticipated to double from 761 million in 2021 to 1.6 billion in 2050.
  4. Next Generation Economy: Decentralization, Web3.
    • Decentralization involves distributing power away from a single, powerful authority. Web3, the third generation of the internet and web-based technologies, uses decentralized blockchain technology instead of a centralized database seen in many websites and applications today.

With these trends in mind, which themes are set to offer outsized investment opportunity over the next 10, 20, or 30 years?

Thematic Investing Opportunities

Here is a breakdown of the next wave of thematic investing opportunities. Each theme shows the market’s expected compound annual growth rate (CAGR) from 2022-2026, and a timeline for when growth is expected to slow down.

Although most themes will likely continue to grow for decades, some may experience plateauing growth as their industries mature.

Theme CAGR 2022-2026 Expected Slowdown
in Growth
⚛️ Hydrogen 6% 2050
🚀 Space 7% 2050
🚙 Autonomous Vehicles* 23% 2047
🏙️ Smart Cities 26% 2045
🤖 AI 19% 2040
☀️ Solar** 7% 2038
🧬 Genomics 18% 2030
🔋 Lithium & Battery Tech 11% 2028
👩🏻‍⚕️ Telemedicine 8% 2026
📱Semiconductors 5% 2026

*CAGR is for the period 2021-2026. **CAGR is for the period 2021-2025.

The space economy is attracting significant capital investment driven by its future role in climate change, security, and broadband telecommunication. For instance, satellites may provide data on greenhouse gas emissions to help improve renewable energy infrastructure.

In addition, lithium is forecast to play an even greater role in the economy. Global electric vehicles surpassed a record 10 million in sales in 2022, and will continue to drive demand for lithium looking ahead.

Characterized by boom and bust cycles, semiconductor chips help process vast amounts of data across smartphones, cars, home appliances, and smart infrastructure. As ChatGPT and AI advancements have taken off in the last year, several semiconductor companies have seen their stocks soar in value.

The investment landscape is set to change significantly in the years to come. While some themes are widely recognized, others are just beginning to gain traction.

Analyzing Themes Across the Adoption Curve

Diving deeper, let’s take a closer look at the growth outlook across four thematic investing opportunities and how to gain exposure to each.

1. Disruptive Technology: Semiconductors

Laggard: Growth is slowing

Pure-Play ETFs:

  • SPDR S&P Semiconductor ETF (XSD)
  • VanEck Semiconductor ETF (SMH)

Many chipmakers have long-term agreements with Big Tech. As the pace of technological advancement accelerates, the implications will be far-reaching for semiconductor companies. In 2022, the global semiconductor industry was estimated to have record sales of $636 billion.

2. Climate Change: Solar

Early Majority: Growth is moderate

Pure-Play ETFs:

  • Invesco Solar ETF (TAN)
  • Global X Solar ETF (RAYS)

Thanks to cost efficiencies, 90% of new global power capacity is forecast to come from renewables by 2027—with solar making up the lion’s share. Over 70 countries, 1,200 companies, and 1,000 cities have made net-zero pledges.

3. Demographic and Social Change: Smart Cities

Early Adopter: Growth is increasing

Pure-Play ETFs:

  • Lyxor MSCI Smart Cities ESG ETF (IQCY)
  • Amundi Smart City ETF (SCITY)

High-speed internet coupled with sensors, IoT, and machine-to-machine communication could drive a paradigm shift in urban design. By 2050, it’s expected that 68% of the world population will be living in urban areas.

4. Disruptive Technology: Space

Innovators: Growth is accelerating

Pure-Play ETF:

  • ARK Space Exploration & Innovation ETF (ARKX)

Space has over 200 use cases including energy, agriculture, and defense activities. By 2040, it could become a $1 trillion dollar industry, up from $469 billion in 2021.

Each theme could present a significant opportunity for investors, fueled by rapid technological advancement and broader societal shifts.

How can investors gain exposure to these thematic ETFs?

The Opto App helps users identify the top trends shaping our future. Compare, analyze, and track 40 disruptive themes and over 160 ETFs.

 

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Amazon Adds $2.75 Billion To Anthropic Investment, Sora Goes To Hollywood – Forbes

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Amazon invests $2.75 billion in Anthropic. This brings Amazon’s investment to $4 billion, as it follows its previous investment of $1.25 billion, which gave the company the option to invest the additional funds. This comes as Anthropic’s new Claude-3 chatbot outperforms ChatGPT- 4 in recent tests. Amazon has unique insight into Anthropic’s performance as it is one of the suite of AI models offered by AWS, which include most of Claude’s competitors.

Sora Goes To Hollywood. Everyone is reacting to a Bloomberg report that OpenAI will soon be meeting with studios and other Hollywood stakeholders to demonstrate the capabilities of the text-to-video generator and explore partnerships. OpenAI says unnamed “A list” directors are already using it.

Based in Toronto, shy kids are a multimedia production company who utilized Sora for the above short film about a man “who is literally filled with hot air.” His head, as you can see, is a yellow balloon. “We now have the ability to expand on stories we once thought impossible,” shares the trio made up of Walter Woodman, Sidney Leeder and Patrick Cederberg. Walter, who directed Air Head, said as great as Sora is at generating things that appear real, what excites us is its ability to make things that are totally surreal.

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Neuralink Shows Paralyzed Patient Playing Chess on a PC. Elon Musk’s brain-computer interface company shared a video of its first human patient, Noland Arbaugh, playing chess and Civilization VI using their brain implant. Arbaugh, who is paralyzed below the shoulders, described the experience as “just stare somewhere on the screen” to move the cursor. While some experts see this as a promising step, others emphasize that it’s still early days and the technology has limitations. Arbaugh acknowledged that there’s still work to be done, but the implant has already changed his life.

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Illuvium Labs Raises an additional $12 million for NFT Gaming Universe. Following an extensive three-and-a-half-year development journey and $60 million in funding, Illuvium Labs is on the cusp of unveiling its interoperable gaming universe. It will feature three interconnected titles designed to utilize the same NFTs seamlessly across all games, promising a first-of-its-kind experience. The influx of $12 million in Series A funding from esteemed firms like King River Capital, Arrington and Animoca will be allocated to developing new gaming titles within the Illuvium ecosystem.

Databricks’ DBRX claims the crown as best open-source LLM. It’s a list that includes Meta’s Llama 2 and Mistral’s Mixtral. Leading companies like OpenAI, Google, and Anthropic sell, or rent, their proprietary private models to enterprises and subscribers. DBRX was produced for just $10 million, orders of magnitude less than its competitors. On Monday, Wired reported that the company showed data proving its AI model’s reading comprehension, answers to general knowledge questions, and coding is superior to other open-source models that can be downloaded from Hugging Face and modified by users.

Shiba-Inu Metaverse leader steps down amid dispute over IP. Marcie Jastrow, the well-regarded Hollywood executive who led Technicolor’s XR efforts, has left the company. This led the company’s legions, known as the Shib Army, to speculate about malfeasance, which is easy to do, because Jastrow is the only person involved who is not anonymous, including Ship’s charismatic leader Shytoshi Kusama.

This live football experience was built by Immersiv.io to showcase how AR can transform the live sports broadcast and fan experience using the Apple Vision Pro. Immersiv.io worked with the Bundesliga (the German Football League) on the production. In a post on X, the company said. “This is a 3D reproduction of the live game integrating TRACAB Gen 6 live skeletal data of all players and the ball, complemented with real-time insights, offering the ultimate live tactical perspective of the game.”

SXSW 2024: XR That Makes You Go Wow. The XR competition was won by an AI experience, The Golden Key. This is the second year in a row that an XR experience did not take the immersive festival’s grand prize.

The second annual AI Film Festival is coming to Los Angeles on May 1, and New York May 9. Seats are limited, request to attend at http://aiff.com

This column, once called “This Week in XR,” is also a podcast hosted by author Charlie Fink, and Ted Schilowitz, former studio executive and co-founder of Red Camera, and Rony Abovitz, founder of Magic Leap. This week our guest is Liz Hyman, CEO of the XR Association. We can be found on Spotify, iTunes, and YouTube.

What We’re Reading

Where Will Virtual Reality Take Us? (Jaron Lanier/New Yorker)

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FP Answers: What is a 'behavioural edge' in investing and how does it affect returns? – Financial Post

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Temperament is the unsung hero of investing success

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By Julie Cazzin with Felix Narhi

Q: What is a “behavioural edge” in investing? How does it potentially enhance returns? How can an investor develop it? — Giovanni

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FP Answers: Giovanni, the term behavioural edge is just another way of saying “temperament,” which refers to the habitual way a person behaves in each situation. For example, one person may be easygoing and relaxed while another is more likely to be impatient and assertive.

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Temperament is the unsung hero of investing success. Gaining insight about our innate emotional temperament and learning how to work with it gives investors an edge.

The common misconception is that you need a high level of intelligence to be a successful investor. No doubt, that can be helpful, but based on many years in the industry, I’ve seen it is not always the most important differentiator.

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Once someone has at least an average level of intelligence, it is temperament that often provides the investing edge in leading to better returns over the long term. “Investing is not a business where the guy with the 160 IQ beats the guy with the 130 IQ,” famed investor Warren Buffett has pointed out.

Having the right temperament can potentially enhance investment returns in several ways. An investor who is very reactive to external events is likely to fare poorly over the long term because, quite simply, the world is full of uncertainty and always will be. Markets are highly reactive, abetted by algorithmic trading and automatic rebalancing by exchange-traded funds. Individual investors should not be.

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Research shows that investors who trade frequently or try to time the market underperform. On the other hand, those investors who can remain calm and patient throughout market cycles do better because markets historically trend upwards. Hands down, being calm, cool and collected is the right temperament for an investor to have.

The concept of “homo economicus” — or economic man — describes a hypothetical person who consistently makes rational decisions. In real life, our decisions are coloured by our formative experiences, moods, external circumstances, what we ate for lunch and a host of other factors. These influences drive our behaviours, but they often operate below conscious awareness (even artificial-intelligence apps “hallucinate”).

Given that behaviour is some combination of cognitive and emotional inputs, an investor can create an edge by developing a disciplined investment process that overrides temperament, especially during highly volatile periods.

The term “active patience” means being clear about your investment principles and what you are looking for, and practicing active patience until the right opportunity arises.

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In contrast, regular patience is making an investment decision and sticking with it no matter what, even if it was the wrong decision. The latter approach is unlikely to bring financial success, which is the major goal of investing.

Active patience is what Buffett would call the “fat pitch,” which occurs when the market (occasionally) presents a very attractive opportunity. It is easy to spot a great opportunity and take full advantage of it when an investor has clear principles on what they are looking for.

Can we change our temperament? Recent studies show that personality traits and moods are subject to change, sometimes within the hour, so temperament may not be as fixed as we’ve been led to believe.

Becoming a better investor starts with self-knowledge — and lots of practice. The behavioural traits associated with good investment outcomes are patience, discipline, emotional control and risk awareness. It so happens, these qualities lead to good life outcomes, too. A calm temperament is the bedrock of making sound investment decisions.

Every investor must determine for themselves how to achieve greater equanimity and there is no shortage of books, videos and TikTok tutorials on that evergreen topic. I would also add the importance of staying humble.

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    FP Answers: Is it time to increase risk in my retirement portfolio?

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In investing, as in life, the learning never stops. Staying open to new information and having the courage to challenge our own and others’ beliefs and habitual behaviours are the keys to future success.

Felix Narhi is chief investment officer and portfolio manager at PenderFund Capital Management Ltd.

Bookmark our website and support our journalism: Don’t miss the business news you need to know — add financialpost.com to your bookmarks and sign up for our newsletters here.

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Lenders Rally After India’s Central Bank Eases Investment Curbs – BNN Bloomberg

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(Bloomberg) — Indian banks and shadow lenders rose Thursday after the country’s central bank eased capital requirements for a unique type of investment, a move that may free up more funds for loans.

The gains came after the Reserve Bank of India issued Wednesday modified rules on lenders’ required provisions for exposure to alternative investment funds, or AIFs, that invest in the lenders’ borrowers. Under the new policy, a lender needs to set aside capital only for the amount the AIF invested in the debtor company, and not the entire investment of the lender in the AIF.

Shares of Piramal Enterprises Ltd., which reported among the biggest provisions for such investments, closed 1% higher after rising as much as 6% during the day. A gauge of financial services firms climbed 1%, the most since March 1.

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Lenders led the rally in the broader market, with the NSE Nifty 50 Index registering its best day since beginning of the month.

The RBI’s softening stance came after industry players raised concerns over clarity and uniformity after it announced in December restrictions on lenders’ exposure to AIFs that hold stakes in their borrowers. The latest move will likely help firms including Piramal, HDFC Bank Ltd. and IIFL Finance Ltd. reverse some of their relevant provisions made previously, according to analysts at Citigroup Inc. and Jefferies Financial Group Inc.

Read more: India’s Crackdown on Financial Risks Puts Industry on Watch

“Select private banks and NBFCs like Piramal had provided for their entire AIF exposure during 3Q and could see some write-backs in 4Q if they decide to reverse the excess provision,” Jefferies analyst Bhaskar Basu wrote in a note.

Regulators introduced a flurry of new rules last year to prevent a buildup of financial stress at a time when India’s economy remained resilient in the face of rising interest rates, slowing global growth and unabated geopolitical tensions.

©2024 Bloomberg L.P.

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