The irresistible forces of digitization

By Albert Tsuei, Managing Director, Portfolio Manager / Senior Investment Analyst

Investors can benefit from the ongoing wave of digital transformation. Concentrating on a small number of key themes while at the same time looking for a good degree of diversification is the UBS approach to this big investment trend.

The enduring global trends population growth, urbanization and aging on the background of technological advancement, resource scarcity and societal changes have already fundamentally changed the way we live and work and will continue to do so. Here's an example to illustrate the enormous dynamic of change: we wanted to know how long it has taken a certain technology to reach 50 million users. It took 50 years for the telephone to get there, for the social network Facebook it took only 3 years (Source: Company reports, UBS).

There's no doubt: The digital revolution will remake numerous business models. Emerging tech companies and incumbent players alike will use newly developed hard- and software to transform the world around us. Thanks to 5G technology, Blockchain, Internet of Things (IoT), Artificial Intelligence (AI) and other disruptive technologies, jobs, mobility concepts, housing, health care and financial services will be rethought. For these reasons, UBS has declared digital transformation as one of the major longer-term investment trends of this decade.

From these developments, six investment themes were identified. They all open up new investment opportunities:

  • Digital data
  • Enabling technologies
  • E-commerce
  • Security & Safety
  • Healthtech
  • Fintech

Well-balanced mixture of new and established companies

From this investment universe, the UBS Digital Transformation Themes Fund is selecting stocks of companies that are well-positioned to be winners in their respective field. The fund basically invests in three types of companies. The so called early stage companies which are benefiting from digital transformation and growing at a very fast rate. Equity markets could underestimate the duration and magnitude of these companies' growth.

Examples are Alibaba, Tencent or Salesforce.com.1 Another category are mature companies that have successfully renewed their growth profile by embracing this transformation. Microsoft or Disney belong to this group. And finally, there are enabler companies that directly benefit from digital transformation by selling the underlying technologies that enable the digital transformation. In this category, we find companies like Taiwan Semiconductor Manufacturing Company.1 This fund combines core strengths of two divisions. Global Wealth Management CIO defines the investment themes, Asset Management selects the stocks and manages the portfolio.

COVID-19 crisis: an accelerator of digital transformation

We see many digital transformation "heroes" emerging from the crisis, in sectors that include: 

  • Enterprise cloud computing companies: these firms made working from home possible at a large scale and provided distributed video capabilities enabling people to conduct meetings remotely.
  • Dominant e-commerce platforms: with machine learning augmented logistics have provided a lifeline for the distribution of goods, when conventional retailers faced disruption.
  • Digital streaming platforms: have offered much needed virtual entertainment for the world.
  • Telemedicine and genomic medicine applications: have become essential public health tools during this pandemic.

Health care to catch up on digitization

Although traditionally slow to adopt new technologies, we see faster adoption as health care systems around the world struggle with rising costs and the constraints paused by COVID-19. Telemedicine, genomic medicine, and robotic-assisted surgery are just three areas that offer new services that could meaningfully affect patient outcomes.

At its core are two main drivers:

  • developments in data analysis (from increased computing power – for instance genomic medicine is a big data science), and
  • connectivity (permitting care outside hospitals).

Read more about investing in Digital Transformation Themes with UBS here: