In the current environment of rapid technological development, UBS Chief Investment Office (CIO) sees opportunities in digital data, automation & robotics, and smart mobility.CIO remains confident on the shorter-term prospects for the US technology sector and projects 2018 earnings growth of 12 - 13 percent.
Technology is developing rapidly and broadly. From driverless cars to real-time translating earbuds, and from solar panels that can be printed on paper to performing surgery directly on DNA, the rate at which these new ideas develop would have been hard to imagine a few decades ago. Some of these developments will prove to be more hype than substance, as certain technologies may take too long to develop or companies may be unable to monetize their growth, but others are already having a very real impact on daily life and on the economy.
Recently, technology firms accounted for almost one-quarter of S&P 500 quarterly earnings and the tech sector is now the largest in the MSCI Emerging Market and MSCI China indices. The number of patents granted has doubled over the past decade and the US Bureau of Labor Statistics estimates that the economy will need 30 percent more software developers over the coming decade, the fastest growing highly paid job.
CIO sees the most compelling technology-related opportunities in three areas: digital data, automation & robotics, and smart mobility.
Digital data. The volume of data is growing exponentially and dramatic declines in the cost of gathering, storing and analyzing data have made it a crucial global commodity dubbed "the new oil." Yet, the vast majority of data remains unexploited. CIO believes that companies that invest across the data lifecycle are well positioned for above-average growth.
Automation & robotics. The world is undergoing a fourth industrial revolution. A combination of factory and process automation, additive manufacturing technology and artificial intelligence is transforming the way the world manufactures and distributes goods. With the number of "internet of things" devices soon to surpass the number of people on the planet, CIO anticipates companies exposed to this theme to outperform the global equity market as a whole, with industrial software at the forefront.
Smart mobility. CIO sees the world at the cusp of a boom in smart mobility: in Europe, in 2018, the total cost of owning a battery-powered electric vehicle will fall below that of a vehicle with an internal combustion engine for the first time. Inflection points should follow in China by 2023 and in the US by 2025. CIO identifies opportunities in companies that supply electronics and electric components related to electrification and autonomous driving.
Investors concentrated in companies or industries threatened by disruption are at particular risk in an age of rapid technological change and are advised to avoid single-stock and sector concentration. Diversification across companies and sectors is key to mitigating this type of risk, said CIO.