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Disruptive innovation: an opportunity for growth

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Game-changing technologies are creating secular growth opportunities and reshaping the investment landscape. They’re transforming society, profoundly changing the way people around the globe live their lives and giving rise to new companies that are challenging a multitude of tradition-bound industries.

Mobile Internet, e-commerce, and video streaming are some of the technologies that have significantly influenced how people communicate, shop, and enjoy their leisure time. And companies like Amazon, Tesla, and Netflix are some of the upstart companies putting pressure on competitors who have been in business for decades.

The pace of innovation likely will accelerate, with artificial intelligence, big data, and DNA sequencing potentially serving as the next disruptors. PGIM Investments offers perspective on some industries experiencing seismic changes caused by this disruption and on new trends we can expect to see in the years ahead:

Automotive

Electric cars are competing fiercely with combustion engine vehicles and will continue to be in demand as prices drop. Camera-based computer vision, machine learning, advanced driver assistance systems and autonomous driving technologies are profoundly changing the way we drive. Additionally, ride sharing, led by internet based application companies Uber and Lyft, is reducing the need for automobiles in urban areas, which could eventually lead to a reduction in auto demand over the long term.

Retail

Technological innovation and internet platforms continue to drive commerce away from traditional brick-and-mortar retail to the internet. E-commerce is growing at 15% annually versus minimal growth for traditional retail.

Mobile payments

Mobile payment is another technology that is scaling rapidly today and should be a large growth driver in the future. Right now, most of the growth is occurring outside of the U.S., primarily in emerging markets. In China, the banking system is not well established, which provides an opportunity for internet companies. In 2016, for example, Chinese payment firms processed $5.5 trillion in mobile payments1 and it’s been increasing at a very rapid pace.

Healthcare

The cost to sequence a human genome has dropped from almost $10 million in 2008 to about $1,000 today. This trend has led to an innovation cycle in which pharmaceutical companies are identifying gene functions and developing drugs that can precisely target underlying disease mechanisms.

Companies driving change

Industry disruptors are expected to be a source of high growth over the long term, even in a slow-growth world. Many of these companies are innovative leaders with network effects that create economies of scale leading to significant competitive barriers that foster the sustainability of their growth.

Capitalise on emerging trends and technologies

Successfully investing in innovative technologies and companies requires a deep understanding into how the technologies will drive a company’s fundamentals and equity performance. Experienced investment professionals able to recognise structural shifts in the marketplace and identify and gauge the duration and magnitude of growth, revenue optionality, and competitive advantages are critical to investment success. Observing consumer-buying patterns, new addressable market opportunities, digital disruption, and scientific breakthroughs can create significant opportunities for investors.

Learn more

Please join Mark B. Baribeau, Managing Director, Head of Global Equity and Portfolio Manager for Jennison Associates, as he provides his investment perspective on these game changing technologies during the Fund Buyer Solutions Stream on 12 June 2018 at 11:10.

1 “China mobile payments dwarf those in US as fintech booms, research shows,” Financial Times, February 2017

The comments, opinions, and estimates contained herein are based or derived from publicly available information from sources that Jennison Associates believes to be reliable. We do not guarantee the accuracy of such sources of information. Investing involves risks. Some investments have more risk than others. The investment return and principal value will fluctuate, and the investment, when sold, may be worth more or less than the original cost, and it is possible to lose money. Past performance is not a guarantee of future results.

© 2018 Prudential Financial, Inc. Prudential Financial, Inc. (‘PFI’) of the United States is not affiliated in any manner with Prudential Plc, a company incorporated in the United Kingdom. PGIM and the PGIM logo are service marks of PFI and its related entities, registered in many jurisdictions worldwide.

In the United Kingdom and various other European jurisdictions, information is presented, and all regulated activities are carried out, by representatives of PGIM Limited, an indirect subsidiary of PGIM, Inc. that is authorised and regulated by the Financial Conduct Authority (FCA #193418) of the United Kingdom, and duly passported in various jurisdictions in the European Economic Area. These materials are being issued by PGIM Limited to persons are professional clients or eligible counterparties for the purposes of the Financial Conduct Authority’s

Conduct of Business Sourcebook Registered office at Grand Buildings, 1-3 Strand, Trafalgar Square, London, WC2N 5HR, United Kingdom, +44 (0) 20 7766 2400.

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