How to invest in a revolution

1. Do you believe that the 4th Industrial Revolution is a game changer? If yes, why? What makes you excited about it, and what scares you?

The 4th Industrial Revolution has the potential to democratise the world, as well as demonetise it. What that means in practice is that it could lead to a safer, better world, where clean energy sustains life in harmony with the environment, counter-balancing the effects of overpopulation. Human health will improve as diagnostic medicine and health care services become more accessible. Many people already consult Google Search ahead of seeking advice from their local GP. 3D-printing will make manufacturing borderless and cheap: think 3D-printed clothing, pills, toys and even food.

The cost of transport will reduce as self-driving cars and Uber-type business models take over. Online education, supplemented by virtual reality learning experiences, will take over from bricks-and-mortar institutions. Virtual reality meetings and interactions will allow people to live further away from their points of employment. It will also allow for cost-effective entertainment. Why travel to France if you can take a virtual reality tour of the Louvre? There are many more examples.

Fundamentally, however, as the cost of housing, food, transport, health care, clothing, education and entertainment fall, so the world will become less dependent on money, leading to a more equitable and inclusive co-existence.

However, as with all the revolutions that have come before, the 4th Industrial Revolution will not come without its disruptions – the key one being employment. In one estimate, 47% of all US job types are at risk from automation, particularly manufacturing and manual jobs. Optimists think that new, not-yet-envisaged services-oriented jobs will be created to take their place. Pessimists see a jobless future for low-skill workers and an increase in social tensions. The truth is likely to be somewhere in the middle.   Other issues include the inevitable questions about privacy and ownership rights, dependence on welfare, boredom leading to violence, and falling fertility rates as people opt for virtual experiences ahead of real relationships.

One thing is certain: humanity is in for an exciting, but very scary, ride.

In the short term the largest beneficiaries of all the change will be the providers of intellectual and physical capital – the innovators and investors. As few of us are likely to become innovators or inventors, we might as well join the largest venture capital and technology firms in the world, such as Google Ventures, Sequoia Capital, Facebook and Microsoft Ventures, and become investors. The New Economy technologies are the future and their impact on the profitability of corporates will be exponential in nature. Instagram, Dropbox, Uber, Airbnb, Whatsapp and a number of other US$1-billion market capitalisation companies did not exist in 2005.

Partial diversification away from traditional behemoth S&P500 Index companies at least seems obvious. In fact, a study by the John M. Olin School of Business at Washington University estimates that 40% of today’s Fortune 500 companies will no longer exist in 10 years.

If nothing else, it will help you to keep abreast of all that is happening in the world today and make you a much more interesting dinner companion.

There are many uncertainties ahead. When new technologies enter the market, they do so with a lot of hype; that is not the same thing as commercial viability. We find the Gartner Hype Cycle a useful methodology for both making investment decisions and evaluating the investment opportunities presented by different technologies. The Gartner Hype Cycle breaks down the evolution of a technology into five phases:

Source: Gartner

From an investment perspective, you need to decide whether you are an early adopter who is willing to combine high risk taking on the expectation of high potential return; a moderate risk-taker who waits for a technology to, at least, show some sound promise; or a cautious investor who waits for full maturity and a certain payoff profile.

From Sygnia’s perspective, in managing the Sygnia 4th Industrial Revolution Global Equity Fund, we aim to combine investments in all five phases of evolution into one product. Hence, the fund invests in over 250 companies, some well known and some experimenting with research. In making stock selection decisions we rely on big data analytics provided by Kensho, our partner in this venture. Without their analytical tools and access to statistics and financial information, managing a product of this nature would be extremely difficult.