All investment work requires a measure of future thinking. However, with the prospect of deep and enduring change in several key global industry sectors, we argue that equity and bond fund managers alike need to become futurologists, more perhaps to save their clients’ money than make money for them.
For the kind of changes referred to below destroy existing profit structures as they create new ones across several industries. In this article we reference autos, payments and energy.
The world auto industry, in listed equity value, sums to US$1.25 trillion (£872 billion) in market capitalisation.
Tesla may one day be bought by a wealthy player and indeed Google once considered this. Since its founding in 2003, Tesla has worked to overcome the key technical challenges of range anxiety, refuelling time and battery sustainability.
The price of electronic vehicles (EVs) has fallen substantially. When Tesla launched its Roadster in 2008, it cost approximately US$110,000. In contrast, the most recent model of the Nissan Leaf costs approximately £16,000, making EVs relatively more accessible to consumers.
Further drops in price will result in them becoming cheaper than conventional vehicles by 2022 according to Bloomberg analysts, largely due to the predicted fall in the price of batteries and rise in the price of oil. Consequently, the number of UK registrations of plug-in cars has increased from 3,500 in 2013 to 50,000 at the beginning of 2016.
In tandem with this comes the prospect of driverless cars, all of them electric.
The most recent developments in such technologies mark a turning point: cars are now being developed with no need for drivers to actually touch the steering wheel, or in some cases, without any steering wheel or pedals whatsoever. This symbolises one of the first steps in the transition from autonomous vehicles (where a fully licensed driver is necessary) to self-driving vehicles (where no driver is needed at all).
Mashing together almost all of the disruptive technologies in transportation comes Uber, who recently announced a strategic partnership with Carnegie Mellon University, Pennsylvania with the view to driverless minicabs.
In his most recent Budget, George Osborne announced that driverless cars will be legal on UK roads by 2017, following Japan and four US states.
The second industry where seismic change is taking place is in payment systems
WeChat has modernised the ancient Chinese tradition of giving red envelopes stuffed with money at Chinese New Year. On New Year’s Eve in 2014, over 16 million virtual red envelopes filled with digital credit were sent by users via WeChat Pay.
WeChat is owned by Chinese internet giant Tencent and originated in 2011 as a messaging app. In 2014, the firm expanded its online payment platform to offer several services including: peer-to-peer transfers, taxi payments and even ‘going Dutch’ on a restaurant bill.
This is merely one example of the development in the wider trend of m-commerce. Apple, Samsung and most recently, Android, have all launched payment platforms. The main benefits of which are thought to be convenience (pay by fingerprint/holding your phone up at the till) and protection against fraud (the retailer doesn’t physically receive your card). Indeed, by 2020 Visa believes mobile payments could become the preferred method of transaction for both consumers and merchants.
M-commerce, however, is still in its infant years. Obstacles to its widespread use remain but are solvable – most notably, the segregation of payment platforms to different devices (e.g. Apple Pay can only be used with Apple devices).
The demise of the debit card therefore certainly isn’t around the corner, but looking at how far technology has progressed since the first online payment in 1994 (for a pepperoni pizza), investors can use their hindsight to aid their foresight.
The yet to be answered question is to what degree the new platforms will steal economics from banks and/or supplant existing payments networks.
The global energy sector is worth US$2.91 trillion in market cap. We have grown up to believe that fossil fuels are finite and whilst the so-called ‘shale revolution’ has been remarkable in the short term, its benefits are highly questionable and may ultimately hasten the process of conversion to other sources.
The sustainable and long-term future of energy ultimately lies in some combination of renewable resources and nuclear. First and foremost in renewables is solar, by far and away the most prospective technology. Here, developing countries can leap frog as access to ‘conventional’ forms of energy remains relatively expensive.
An example of a firm that has capitalised on this is M-Kopa, which uses mobile technology to make solar power accessible to off-the-grid consumers in Africa. To date, M-Kopa has more than 300,000 customers with ambitions to increase this to one million by the end of 2017.
Some of the emergent players will prove fantastic investments, however there are many more threats than opportunities. As a firm we are comfortable in avoiding autos and oil shares for these reasons, whilst we remain invested in established payments providers such as VISA as we reassess its market position.