It’s hard to think of an industry that won’t be touched in some way by technological disruption over the next decade. That’s why Morgan Stanley Investment Management’s Growth Team has a disruptive change researcher. The Team’s disruptive change researcher works with portfolio managers to detect big ideas and emerging trends that have far-reaching implications for economies, industries and social behavior.
Because disruptive change is so pervasive, the Growth Team looks at all of their investments through a disruptive lens. The disruptive analysis effort is really about supporting the Growth Team’s strategy of long-term investing, finding companies with a sustainable competitive advantage, and making sure that they aren’t holding companies that could be left behind.
Here are five big disruptive trends that the Growth Team is currently working on, as well as industries that could be affected and what they think investors should watch out for:
1. Machine Learning
Machine learning has the potential to be one of the biggest disruptors over the next decade with the transportation and medical industries likely to be first in line for disruption. Machine learning is really all about pattern recognition. In the future, we might see radiology and scans detecting cancers earlier than they’re detected today. Machine learning could someday be used to scan for genes that predispose us to certain kinds of diseases.
To keep abreast of the change ahead, the Growth Team believes investors should “follow the data.” Whoever owns the data will own the technology because machine learning is only as good as the data that gets fed into it.
One of the biggest investment risks is regulation. Industries that could be disrupted might seek new regulations and other protections against disruption. Investors should watch this, particularly in already regulated fields such as medicine and transportation.
2. Autonomous Vehicles
Autonomous driving will be facilitated by the data-processing capabilities of machine learning, but its disruption capabilities are so widespread that the Growth Team considers it a separate category.
With autonomous vehicles, transportation can largely be converted to ride-sharing. Cars are typically the most expensive purchase after a home and are costly to maintain. With 90% of accidents caused by human error1, regulators and consumers are also expected to be interested in autonomous vehicles as a potentially safer alternative.
Other industries may be indirectly affected. On average, a commuter spends 55 minutes a day driving2, so that’s time they get back. One of the things they are likely to do with all that time is to use mobile web services, which the Growth Team thinks could be big beneficiaries.
Investors should also carefully watch what the incumbents in the car industry do. Are they acknowledging this disruptor on the horizon? And what are they planning to do about it? Some have made strategic moves, but some have not, notes the Growth Team. As with other disruptive changes, regulation will also play a role in determining where and how soon autonomous driving becomes a reality.
3. Augmented Reality
Augmented Reality (AR) is an exciting technology that will likely have multiple applications. The Growth Team sees this being useful in education and training because it essentially overlays virtual images onto reality. AR can simulate real-world scenarios. This allows orientations or training to take place in a safe environment versus a real-world environment that can be more dangerous. Surgeons might be able to practice complex procedures before operating on patients, for instance. AR might also have entertainment value, by enabling consumers to enjoy unique experiences like sitting on the field at a sporting event or traveling to exotic locations.
AR is in the early stages of development, so the full potential will unfold over time.
In theory, Blockchain could disrupt any transaction that requires sharing a document or contract. Financial firms are most likely to see disruption because Blockchain’s shared-ledger approach could dramatically affect the time, cost and complexity around how transactions are recorded and how custodial business is done. If Blockchain software is developed and trade data is kept on one shared, encrypted ledger that is updated in real time and openly available to participants in the transaction, mistakes, such as instances where ownership claims have been made on more shares than a company has issued, will be relegated to the past.
The Growth Team believes that the real-estate market could also benefit from Blockchain, especially in certain emerging markets where centralized record-keeping can be subpar. Investors should keep watch on regulations that might impact Blockchain’s use. The Growth Team believes the big risk is institutional pushback. There are many people in organizations whose jobs can be eliminated with the adoption of Blockchain.
CRISPR is a new tool for genetic research that allows scientists to locate specific segments of DNA and then easily replace or delete them. This could cause huge disruption to the way healthcare is delivered today. It offers the ability to cure a disease at the genetic level. For investors, it has the potential to create new industries and disrupt existing medical treatments.
Investors should watch research and development in the healthcare industry. Companies that are spending money on research and development, rather than concentrating on short-term return of capital, like share buybacks, are the ones to focus on. Investing in biotechnology, however, is difficult, even for professional portfolio managers. Biotechnology is likely the riskiest of all disruptive technologies to invest in. These companies are usually early-stage companies, with no proven cash flow. It’s also very difficult to know what to invest in, unless you have expertise in a specific area of biology. Even then, it can be very tricky to anticipate which companies will receive Food & Drug Administration approval and a path to success.