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How to invest in the fourth industrial revolution

06 June 2019

3 minute read

Humankind’s undiminished ability to invent, apply and get better at using new technology suggests that pessimism with regards to the future may be misplaced. Here, we explore how some diversified exposure to the world’s share and bond markets represents one way to express a little of this entirely rational optimism in portfolios.

Who's it for? Confident investors

What you’ll learn:

  • How to look for the gains from innovation
  • Why a diversified portfolio may be the answer
  • Why investors might want to consider the Barclays Ready-made Investment portfolios

Harvesting the gains from innovation

Pessimism with regards to the future is not a new phenomenon. The early 19th century British politician and historian, Thomas Babington Macaulay famously asked “on what principle is it that, when we see nothing but improvement behind us, we are to expect nothing but deterioration before us…” (Edinburgh literary review, 1830).

We would suggest that humankind’s undiminished ability to invent, apply and get better at using new technology – an ability that is at the heart of the massive improvements in living standards seen over the millennia of recorded human history – suggests that pessimism with regards to the future may be misplaced. As we’ve suggested before, some diversified exposure to the world’s share and bond markets represents one way to express a little of this entirely rational optimism in portfolios.

What has a diversified portfolio got to do with it?

It is often asked how best to benefit from one particularly potential technological advance or another – which companies are the most likely to see their share prices multiply as a result of their work on Artificial Intelligence, robotics or various other areas of the technological frontier? However, singling out the eventual winners in these areas is of course complicated and fraught with danger – for every Google, there are many Altavistas.

However, do not despair because the long-term winners from such technological advances actually tend to be much easier to pick – the key is to focus not so much on the inventors but the adopters. We explore a couple of examples below.

First, the concept of intelligent machines capable of predictive maintenance. This would allow factories in a range of sectors to significantly reduce unplanned downtime from malfunctioning equipment. The resulting increase in reliability would be part of the story allowing recipients of that factory’s goods to hold less inventory. The cost and cash flow benefits to the innovation would be widely spread across a range of industries. Faster earnings growth across this cohort would be the likely result.

There is also the potential for this same technology to aid advances in areas such as materials science and healthcare. AI and machine learning capabilities are already being helpfully deployed in the battle against money laundering and fraud detection.

The above examples focus on Artificial Intelligence, but the same is true of most of the technological advances that lie in humankind’s future. Not all of them will be net progress of course. History teaches us that further societal disruption is unfortunately an inevitable bi-product too.  However, for those looking for some compensation for the robots taking all of our jobs, an investment in a diversified basket of global stocks and bonds may help provide some offset.

Alongside all this, the sight this week of another superstar fund manager in the wars, should be a reminder of the benefits of diversification and, at least some, passive access to markets.

How to invest

Our Ready-made Investments can provide access to a diversified portfolio. However, they are not the only funds that we offer and they won’t be appropriate for everyone. We offer a wide range of funds on our website and the Barclays Funds List may help you to narrow down the wide range available to invest in. These funds are selected by Barclays investment specialists and, based on our research, they’re the funds that we believe have the potential to generate consistent returns over the medium to long term.

You should only be thinking about holding these investments for at least five years as they’re designed for the long term.

These are our current opinions but the future, as ever, is uncertain and outcomes may differ.

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