The traditional way of analysing the world of business is to carve it into distinct sectors, and to look for the most attractive investment opportunities within each category. But this regimented approach is not fit for a complex and interconnected future, where the boundaries between many long-established industries are starting to blur into each other.
“There are forces at work in the world that operate across multiple sectors and various disciplines. If we stay in our boxes, we are going to miss opportunities,” said Eliot Camplisson, Head of Equity Research and Product, Asia Pacific at HSBC. “When developing an investment idea, our analysts increasingly need to transcend sectors, arriving at a more holistic understanding of the major issues that are fundamentally reshaping industries, economies, and even society itself. We believe that analysts that think across the market, instead of focusing on sectoral silos, will be in a better position to serve our clients.”
Technology provides the clearest example of this less constrained way of thinking. For many companies, technology is their core business, and this requires specialist analysis. But more broadly, tech-driven innovation is now found in all sectors, as it transforms everything from shopping to healthcare, and banking to communications.
Electric vehicles (EVs) clearly illustrate this idea. It is one of the hottest market themes. Mr. Camplisson described how a sector-driven process would likely focus on companies that make and sell EVs. A more joined up approach however, will consider everything from car companies to battery makers, and even the miners of lithium and cobalt that is used in the batteries.
This new way of thinking about investment is a truly multi-asset approach that applies to a wide range of securities. The digital transformation of traditional finance for example, could have a significant impact on bank credit and short-term funding, which would be a development that fixed income investors would need to follow closely.
There are other ongoing themes that straddle multiple assets. Demographics is one such case, as fundamental shifts in the world’s population will result in aging populations and lower birth rates – a development that will not only increase the demand for healthcare, but also create challenges for pension funds looking for income generating assets to support individuals who are retired.
Mr. Camplisson also illustrated how analysis focused on one aspect of the market can fail to spot the right investment thesis. Around a decade ago, emerging market consumption was a key theme. The research was handled primarily by consumer specialists, and the approach was to recommend buying stocks in companies that made consumer goods or bricks and mortar shopping centres.
By focusing on traditional retail companies, they missed out on the disruptive drivers of value in the consumer sector growth – namely distributors, online shopping platforms and logistics companies.
New ways of doing business, especially in Asia, are a powerful reminder that the future can look very different to the past. To be prepared for a world where the old sectoral categories are breaking down, organisations need a change in mindset by conducting analysis that discovers the links between different industries. In an increasingly interconnected world, transcending sectors will be a key component to investment success.
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