The world is constantly changing, and these days it’s changing faster than ever. With the rise of digital technology over the last 30 years, the pace of change in our daily lives is unprecedented. What’s more, so many areas that digital technology has touched in this time have been fundamentally upended—they’ve been disrupted.
‘Disruptive innovation’ is a catch-all term that describes anything—from electronics to services to concepts—that changes business, industry, and even consumer behaviour in profound and irreversible ways. Once you’ve been disrupted, there’s no going back.
In most cases, disruption involves innovations that make previously expensive or complex products or services accessible to the masses. Where once a high-end piece of technology or software might only have been available to a niche or more-skilled segment of consumers, disruptive innovators make them affordable and useable to the everyday consumer, and in the process displace long-standing, established competitors.
Some recent disruptive technologies include smartphones, e-commerce, ride-sharing apps, social networks, and streaming entertainment.
Disruptive technologies can establish new markets or take over old ones. Today’s investor needs to ensure their investments are keeping up or your portfolio may be left behind. Including disruptive innovation in your portfolio may have the ability to diversify your investments and enhance your overall portfolio returns.
The growth of disruptive technologies
The rate of change induced by disruptive technologies in several industries has never been faster, as has their broader impacts on innovation and the economy. Cloud computing, for example, a disruptive technology that touches on sectors as diverse as software, commerce, and the internet, is growing faster than the wider economy.
In less than 20 years, cloud computing has gone from zero to a quarter of a trillion-dollar market. Right now, cloud computing—which allows users to access computing services such as storage, networking, third-party applications, and software development tools remotely via the web—is responsible for 1 in 4 applications that currently run around the world via the internet. That figure is projected to be 1 in 2, fully half of all applications, by the end of 2023.
Gartner estimates that the public cloud will grow by more than $100 billion between 2019 and 2022, or approximately 12% annually. This far outpaces both the economy and the rate of overall investment in IT. A similarly disruptive technology whose presence will be more keenly felt as time goes on is artificial intelligence (AI). At its heart, AI comprises a class of sophisticated algorithms that use machine learning (ML) and natural language processing (NLP) to enhance the speed, quality, and even originality of automated software processes and outputs.
Artificial intelligence is already being leveraged for tasks as diverse as image recognition, improving online search results, and fraud detection. Based on vast amounts of data and media it was able to consume, sort, and analyze, AI programs were the first to alert epidemiologists to the COVID-19 outbreak in Wuhan before the US Centers for Disease Control and Prevention detected COVID-19 and before any official announcements by the Chinese authorities.
Virtually all modern software applications already incorporate AI functionality in some fashion to improve their performance. AI is embedded in leading online and POS payment technologies. Your favourite music streaming service and your preferred video streaming service all use AI to power their recommendation engines.
As the speed and sophistication of both the hardware and software necessary for AI computations improve, expect AI to become an increasingly common aspect of our technological lives.
Including disruptive innovation in your portfolio
Perhaps disruptive innovation’s most considerable risk to your portfolio is opportunity costs or the thought of being left behind because you don’t have it in your investments.
One of the simplest ways to gain exposure to disruptive innovation is through an exchange-traded fund (ETF). ETFs invest in a selection of stocks, which may or may not be linked to an index, and which trade throughout the day. Thematic ETFs provide a way for investors to acquire investments focused around a specific area or technology. For investors wanting access to disruptive innovation in trends like electric vehicles, cloud computing, biotech, or media and entertainment, a thematic ETF is an easy, accessible way to include a broadly representative selection of stocks in such areas to a portfolio.
Because thematic ETF holdings are often concentrated in a single industry or sector, there is the possibility for more volatility, so diversification of your overall portfolio remains essential. However, an ETF themed around areas of disruptive innovation simplifies the process of adding disruptive innovation to a portfolio.
Disruptive innovation gives your portfolio an edge by ensuring you keep up with trends and developments in a quickly changing world, giving you exposure to high-growth industries.
How can investors take advantage of this disruption and innovation?
The Evolve Innovation Index Fund provides access to global companies involved in disruptive innovation across a broad range of industries, including cybersecurity, cloud computing, eGaming and eSports, automobile innovation, 5G, blockchain, genomics, and robotics and automation.
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