Chart 2: Leading dynamics in stocks of companies that invest heavily in research and development.
Chart 1: List of «breakthrough technologies» according to the PGIM classification.
We wrote earlier about the so-called «big investment topics», which are still in its infancy / development stage and therefore can «shoot» on a long horizon for 20-30 years. Approximately the same way as it happened with Apple, Amazon, Netflix and other pioneer companies that literally create new industries and new demand. Such topics, for obvious reasons, may be of interest to today’s 20- and 30-year-old professionals, who, because of their age, have the opportunity to invest in the future.
Today, there is little in the development of this topic of investment in new technologies that can «undermine» the existing order of things and qualitatively change a particular industry and life, in general. Prudential Global Investment Management (PGIM), a member of the top 10 global asset managers with $ 1.2 trillion, released its small analytical report that might be of interest to us for at least two reasons: https://bit.ly/2RyQlA1
Firstly, PGIM gives its list of breakthrough technologies with the greatest potential (yes, there are blockchains too). He is on the first diagram above this post. It is not necessary to take it entirely and unconditionally, but it is probably useful to get acquainted with the opinion of not the most recent people in the industry.
Secondly, and this is closer directly to investing. It is logical to assume that those companies that in 10 years will become the «new Amazon» should now actively invest in research. Much more active than the rest. PGIM shows that the shares of those companies that are more actively investing in Research & Development (whose R & D costs are higher relative to other incomes than others), on average, outperform the market in dynamics. They divided all the companies in the S&P Global Broad Market Index into 5 parts (quintiles) and estimated their stock returns for the 10 years since 2008. It turned out that the equal weighted portfolio of companies from the top 20% (first quintile) in terms of R&D Intensity noticeably outpaces even the next 20%, not to mention the entire market. More statistics can be found in the second diagram above this post.
Perhaps, if done on the basis of this ETF study, it will be quite logical from the point of view of an investment thesis, and will be claimed by a generation of young investors. For example, a balanced portfolio of top 50 global companies in terms of R&D Intensity. There will obviously be representatives from different industries, and different capitalizations, and different regions. But we didn’t find such an ETF at etfdb.com, and Google didn’t help either. So, if there are people among the readers responsible for launching new products in Management Companies, there is still an opportunity to occupy this niche.