Client Portals

Major Themes and Investment Opportunities Over The Next Five Years5 min read

The Engines of Modern Economies

Sep 2, 2020 - Max Osbon ( 7 mins to read)

Max Osbon

As our economy develops in the post-COVID world, digital-first solutions are a primary focus for investors, entrepreneurs and executives. Public cloud infrastructure (Google Cloud and AWS) and robust broadband connectivity are still relatively new and have opened the doors to exciting new opportunities. SaaS (Software as a Service) companies are thriving, so are digital health solutions, eCommerce solutions and digital finance applications. Let’s take a look at the major trends that are likely drivers of growth over the next five years.

The Migration From Private to Public Cloud

Why is it important? The public cloud allows entrepreneurs to test and scale new businesses quickly and cost-effectively. Private clouds are expensive to build and maintain. Amazon, Microsoft and Google are today’s leaders in public cloud infrastructure. Despite the industry’s growth to date, we are still in the beginning stages of the migration from private to public cloud infrastructure. The current estimates of public cloud penetration are around 10%. The public cloud providers are not the only opportunity. Companies like Cloudflare and Fastly help the public cloud better interact with end-users by improving security, routing sophistication, and speed.

The Digitization of Finance

Why is it important? Digital financial solutions improve security, reduce fraud and save us quite a bit of time and money. Consider the effort you’ve spent filling out loan applications, initiating wires, waiting for checks to clear and EFTs to process. Companies like Paypal, Square, Robinhood, Interactive Brokers, Market Axess, Visa and many others are actively building highly scalable financial solutions that simplify routine financial transactions. Most of the large banks today are behind the curve on this trend. The leaders of new financial technology solutions have seen their stock prices grow at incredible rates and we don’t expect that to end in the near term.

Artificial intelligence to GPUs to semiconductors to EUV machines

Why is it important? Driverless cars, automatic fraud detection, improved search results, marketing analytics, HR analytics, more sophisticated video games, superior weather predictions, etc. require us to continue to push the boundaries of artificial intelligence and machine learning. That computing relies on the public cloud, state of the art software, and sophisticated GPUs (graphical processing units). The supply chain that makes AI possible includes some of the world’s best innovators. NVidia produces GPUs with semiconductors from TSMC built with breakthrough EUV machines by ASML. There are many ways to invest in the future of AI. The total addressable market for next-gen artificial intelligence is still in its formation stage.

The Battle For Our Attention

Why is it important? Whoever controls our attention has the opportunity to control how we spend our money. Apple’s IOS and Google’s Android operating systems seem to own a near-monopoly on our attention via our smartphones. Our dedication to our phones gives Google and Apple the mineral rights (for now) to sell our attention to advertisers. Roku has paired with the TV manufacturer, TCL, to create Roku native smart TVs to distribute content and sell ads via companies like The Trade Desk. 

I read about digital theme parks over the weekend and how much time people spend in digital worlds playing Roblox and Minecraft. Roblox recently broke over 1 billion playtime hours per month and is owned by Unity, scheduled to IPO this year. That 1 billion hours per month figure doesn’t include time spent viewing Roblox players on Youtube or Twitch. These companies are sophisticated and scalable and competing for your highly profitable attention.

Digital Health Care and Health Data

Why is it important? Telemedicine widens the market for healthcare while lowering the cost. At the same time, it’s more efficient for patients and doctors. VynZ Research expects the digital health market to grow from $111.4 billion in 2019 to $510.4 billion in 2025. That’s a CAGR (compound annual growth rate) of 29.0% for the next five years. Health care is 18% of our GDP. Like many sectors, COVID has accelerated this trend towards digital health. Significant mergers and acquisitions are already happening to create the next generation of digital health leaders. The merger of Livongo and Teladoc last month is an example of a powerful up and coming provider.

E-Commerce

I am saving the best for last. Why is it important? E-commerce allows for the quick and efficient matching of buyers and sellers. Amazon does it all under one roof (Amazon.com), while Shopify democratizes the online shopping experience by providing a platform for business owners to sell their products online. VTEX is another innovator in the e-commerce space worth following (they are not public yet).

Mercadolibre and Sea Limited are leading e-commerce companies in international markets. It’s interesting to note that Mercadolibre is the only international company in the Nasdaq 100 index. It’s challenging to nail down an estimation of the total addressable market (TAM) of global e-commerce. E-commerce adds natural convenience for consumers and sellers. Distribution centers, warehouse technology and shipping logistics innovations are scaling exponentially to meet constant increases in demand. This has been a powerful force for at least a decade.

Implementation Considerations

We have not addressed risk management, specific investment vehicles, tax considerations, sizing, timing, or important valuation considerations. We can’t predict the future. However, we can prepare for it by taking advantage of the trends that will eventually shape the way we live and conduct business. If you would like to discuss how to implement these trends in your investment portfolio and overall family wealth strategy, please let us know. We welcome your insight and the opportunity for discussion.

WEEKLY INSIGHTS
delivered to your inbox

DISCLAIMER

This communication may include forward-looking statements. All statements other than statements of historical fact are forward-looking statements (including words such as “believe,” “estimate,” “anticipate,” “may,” “will,” “should,” and “expect”). Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Various factors could cause actual results or performance to differ materially from those discussed in such forward-looking statements.”

“Historical performance is not indicative of future results. The investment return will fluctuate with market conditions.

Past performance is not indicative of any specific investment or future results. Views regarding the economy, securities markets or other specialized areas, like all predictors of future events, cannot be guaranteed to be accurate and may result in economic loss to the investor.

Investment strategies, philosophies, allocations and holdings are subject to change without prior notice.

This communication is intended to provide general information only and should not be construed as an offer of specifically tailored individualized advice.

While the Adviser believes the outside data sources cited to be credible, it has not independently verified the correctness of any of their inputs or calculations and, therefore, does not warranty the accuracy of any third-party sources or information.

Adviser does not endorse the statements, services or performance of any third-party vendor.

Unless stated otherwise, any mention of specific securities or investments is for hypothetical and illustrative purposes only. Adviser’s clients may or may not hold the securities discussed in their portfolios. Adviser makes no representations that any of the securities discussed have been or will be profitable.

Any IPO alerts are purely informational and should not be construed as recommendations to invest.

Adviser is not licensed to provide and does not provide legal, tax or accounting advice to clients. Advice of qualified counsel or accountant should be sought to address any specific situation requiring assistance from such licensed individuals.

Any case studies or hypothetical client profiles are for demonstration purposes only. They illustrate the breadth and depth of the many clients we represent at various life stages. Any similarities to actual Adviser’s clients past or present are strictly coincidental. Individual advice and results will vary based on each client’s circumstances, objectives and prevailing economic conditions.