As emerging technologies reshape the global economy at a breath taking pace, ‘New Economies’ are being created that upend more traditional industries. The World Economic Forum has dubbed this the Fourth Industrial Revolution, during which the means of production are characterized by technologies that blur the lines between the physical, digital, and biological spheres.1
Position for the New Economy
Merging Characteristics of Man and Machine
This New Economy we live in today merges the characteristics of man and machine. This is driven by:
Exponential processing power
Robotics and automation
Smart Cities. Self-driving Cars. Space Travel.
The New Economy creates new opportunities for investors. Every day, traditional sectors and industries are transforming as innovation and artificial intelligence (AI) create technological shifts in our modern economy. These shifts will impact everything from where we live and the jobs we do to the food we eat and how long we live.
What are the New Economy Sectors?
From ridesharing to flying taxis, autonomous vehicles present an enormous opportunity for growth. McKinsey & Co. estimates that shared mobility and autonomous vehicles will garner 73% market share of the automobile industry, driving that industry’s growth over the next decade.2
From drones to cybersecurity, AI is changing every aspect of war. In response, the line between technology and defense is blurring, with worldwide spending on militarized AI projected to rise to $118 billion by 2023.3
An estimated $4.6 trillion in infrastructure spending is needed to fix America’s aging infrastructure by 2025.4 Beyond roads, bridges and tunnels, tomorrow’s infrastructure will extend to smart buildings, power grids and intelligent water.
From the satellites that guide our GPS, to pharma trials in micro-gravity and tourists on Mars, space industry revenues have grown at 7% per year since 2005 and are forecast to account for 5% of US GDP by 2040.5
Significant progress has been made to improve energy efficiency and reduce the costs of the underlying technology involved in generating power from wind, solar, hydroelectric and geothermal sources. Renewable energy is projected to account for 75% of the global power new capacity addition by 2050 —up from 56% at the end of 2018.6
Capitalize on the Opportunity
Portfolio Construction Ideas
Investors looking to incorporate New Economy thinking into their portfolio allocations could consider:
Complement an Existing Core or Growth Allocation
Pursue more dynamic growth by focusing on future disruption to potentially control both growth and sector drivers.
Amplify Existing Sector Positions
Emphasize an emerging trend within a particular segment of the economy to create a more robust growth profile.
Replace a Narrow Thematic Position
Target a broad theme and capture the entire ecosystem fueling innovation.
Pursue the Potential
Technological change knows no bounds. Product innovation shouldn't either.
SPDR® S&P Kensho ETFs
SPDR ETFs has partnered with Kensho Technologies, Inc., a specialist in identifying innovative companies that are positioned for growth, to bring six thematic ETFs to market:
Concentrated investments in a particular sector or industry tend to be more volatile than the overall market and increases risk that events negatively affecting such sectors or industries could reduce returns, potentially causing the value of the Fund’s shares to decrease.
Passively managed funds invest by sampling the Index, holding a range of securities that, in the aggregate, approximates the full Index in terms of key risk factors and other characteristics. This may cause the fund to experience tracking errors relative to performance of the Index.
Select Sector SPDR Funds bear a higher level of risk than more broadly diversified funds. All ETFs are subject to risk, including the possible loss of principal. Sector ETFs products are also subject to sector risk and nondiversification risk, which generally results in greater price fluctuations than the overall market.
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