Digital Darwinism: the new disruption

02/03/2022
Abstract architecture

Summary

Disruption has always been around us, but we are moving to a new “survival of the fittest” digital era. We’ve identified key themes – from climate tech to AI – that are driving this new shift in a profound way, making disruption a critical factor for investors to build into their portfolios.

It is time to rethink what you thought you knew about disruption. It was once primarily associated with the technology sector – particularly the new platforms that were shaking up traditional means of ride-hailing, rentals, food delivery and more. But now, transformative advances in hardware and software – and the sheer proliferation of data – are pushing disruptive forces into more sectors and areas of our lives than ever before – and at an exponential rate. 

This is leading to a kind of “digital Darwinism” – a global phenomenon that will sweep some businesses aside, allow others to secure a dominant market share and potentially even affect the world’s geopolitical order. Like the evolutionary process after which it’s named, digital Darwinism is a shift at the cellular level, and it’s changing the world we live in. But there’s good news for investors. Not only can you invest in and benefit from growth and profit opportunities – you can also contribute to positive real-world outcomes.

Three key investment themes for the new disruption

1. Climate & technology

In May 2021, US climate change envoy John Kerry claimed that half of the reductions necessary to achieve net-zero emissions “are going to come from technologies we don’t yet have”. “Climate tech” advancements – from artificial intelligence (AI) powered marketplaces for carbon offsets to improved power transmission infrastructure – can help reduce the impact of global warming. 

Box 1According to PwC, in the year leading up to June 2021, USD 87.5 billion was invested in companies combating the climate crisis, compared with USD 24.8 billion the year before.1  And since 2013, more than 60% of all venture capital funding has poured into technologies related to mobility and transport – an area that includes electric vehicles. (See chart.) There also seems to be a disconnect between the amount of greenhouse gas (GHG) emissions that certain sectors produce compared with the funding they receive. For example, only 9% of funding went to manufacturing during the same period, even though it contributed 29% of GHG emissions. This could give investors a prime opportunity to fund new climate-focused technologies. 

 

 

Many emissions-reducing technologies may be underfunded
Share of global emissions and climate tech venture investment by challenge area

Chart: Say-on-pay failure rate increased in 2021
Source: PwC “State of Climate Tech” 2021.

 

2. Data & connectivity

With so much of the world’s population connected digitally, disruptive innovations can sweep across the globe at a breakneck pace. Consider that more than 60% of the world’s population is connected to the internet2  – compared with approximately zero percent in the early 1980s. All this connectivity is generating 2.5 quintillion bytes of data a day3.  What’s more, the internet of things (IoT)4  grew by 9% in 2021, reaching 12.3 billion connections5.  And “6G” technology (where China is currently leading the way) could be 100 times more powerful than 5G. This could move far beyond “smart homes” to “smart cities”, which could help address significant economic, social and environmental challenges.

Box 1So what is all this infrastructure – and the data it transmits – leading to? The next phase of the internet – which some call the “metaverse” – could bring the virtual and online worlds closer together. How many students would not prefer to “walk” into an old Roman village rather than simply read about it, and who wouldn’t want to “tour” a remodeled kitchen before work starts? The metaverse could lead to new revenue streams for well-positioned companies, especially those connected to fields such as shopping, education, entertainment and electronic payment systems.

 

3. Man & machine 

Throughout history, there have been great evolutionary leaps that have propelled life forward – the original “biological disruption”. We may be approaching a similar moment today. Some estimate that by 2045, machine learning and AI could usher in the “singularity” – the moment when machines will be smarter than humans.But even if that moment never comes, new technologies are having a profound impact on the quality and length of life.

Consider how science seems to be following its own “Moore’s law”, with new technologies being implemented at an increasingly rapid rate while the cost steadily declines. The fast-growing field of genomics8 offers the prospect of earlier identification and treatment of genetic illnesses, and has led to the speedy introduction of new solutions to the Covid-19 crisis. And in the field of nanotechnology9, scientists have developed an injectable “liquid retinal prosthesis” that may someday be able to help blind people see again.10

Prepare for “digital Darwinism”

Just as Charles Darwin and other naturalists expounded a theory of evolution founded on the “survival of the fittest”, we are seeing a competitive landscape reshaped by the ability of individual businesses to adapt and thrive. But the “winner takes all” implications of this race to technology supremacy – and the influence that comes with it – has wider resonance. Arguably it is at the heart of geopolitical tensions, for example between the US and China, perhaps even more so than questions around trade. Control of data gives control of power. And with an imperative to protect digitised businesses, robust cybersecurity is a must. The cost of global cybercrime could reach USD 10.5 trillion in 2025, up from USD 3 trillion in 201511.  This represents a fast-growing industry in itself: global spending on cybersecurity is estimated to exceed USD 1.75 trillion from 2021-2025.12

Two takeaways for investors

1. Rethink how portfolios are constructed

In this low-yield environment, where growth and income potential are at a premium, it’s important to take a different approach to portfolio construction – one that may be able to capitalise on disruptive opportunities. Perhaps in addition to core diversified funds, investors should consider these areas:

  • Thematic investing can help investors capitalise on opportunities emerging from this wave of disruption. Thematic funds – such as those focused on “healthy living” or “smart cities” – can provide a window into future opportunities, a new prism alongside traditional ways of classifying investments by sector or geography. 
  • Sustainability in all its guises is an essential consideration for investors today – particularly the need to combat climate change, which is one of the dangerously disruptive forces in the world. Fortunately, investors can align their portfolios with investments that can help effect real-world change. “Green” and “blue” bonds can help finance projects specifically associated with climate change and ocean conservation. But sustainability has also moved beyond climate, and now impacts every area of our lives. Investments aligned with the UN’s Sustainable Development Goals can help align countries, organisations, companies and individuals from around the world to help protect the planet, end poverty and improve life for communities globally. Disruption and sustainability go hand-in-hand from an investment perspective. When seeking to identify the winners of this era of disruption, it is more critical than ever to use sustainability factors to assess the true roots of resilience, success and longevity for the companies we invest in.

2. Tap the power of disruptive tech in the investment process

To take full advantage of the “new” disruption, investors should incorporate new, possibly disruptive technologies into their investment process.
Consider all the factors that go into creating long-term investment solutions – whether growth or value, fundamental or quantitative. Portfolio managers must assess business models and valuations, analyse sustainability factors, and evaluate management teams, corporate governance and organisational culture. The ability to harness the explosion of available data on companies and trends – from multiple sources around the world in real time – is critical. So is the ability to analyse it expertly – and focus on what is relevant.

At Allianz Global Investors, we are constantly developing tools to support our portfolio managers in their search for alpha – including financial and “outcome-linked” alpha – while staying agile in the face of changing market conditions. Within our investment processes, we are using data in greater volumes than ever before. We are deploying AI and natural language processing (NLP) in multiple languages to put the latest insight at our fingertips.

Disruption may be intrinsically unsettling. But we are convinced that it is something to be embraced because of the opportunities it presents and the sheer, urgent necessity of turning its repercussions to your advantage.

 

1. Source: PwC “State of Climate Tech 2021” report, December 2021.
2. Source: DataReportal: “Digital around the world – global digital insights”, October 2021.
3. Source: SeedScientific.com: “How much data is created every day?”, 2018.
4. IoT: the hyperconnected world in which physical objects are embedded with sensors and can be connected and controlled.
5. Source: FirstPoint: “Top 4 challenges in IoT data collection and management", October 2021.
6. Source: CloudNine.com: “Perspective on the amount of data contained in 1 gigabyte”.
7. Source: Futurism.com “Kurzweil claims that the singularity will happen by 2045”, February 2017.
8. Genomics: the mapping and potential editing of genomes, an organism’s complete set of genetic instructions.
9. Nanotech: the manipulation of matter at a molecular scale – one nanometre is one millionth of a millimetre.
10. Source: DigitalTrends: “Nanotech injection successfully restores vision in blind rats”, July 2020.
11. Source: Cybersecurity Ventures: “Cybercrime to cost the world $10.5 trillion annually by 2025”, November 2020.
12. Source: EINNews.com: “Global cybersecurity spending to exceed $1.75 trillion from 2021-2025”, September 2021. 

Information herein is based on sources we believe to be accurate and reliable as at the date it was made. We reserve the right to revise any information herein at any time without notice. No offer or solicitation to buy or sell securities and no investment advice or recommendation is made herein. In making investment decisions, investors should not rely solely on this material but should seek independent professional advice. However, if you choose not to seek professional advice, you should consider the suitability of the investment for yourself.

Investment involves risks including the possible loss of principal amount invested and risks associated with investment in emerging and less developed markets. Past performance, or any prediction, projection or forecast, is not indicative of future performance. This material and website have not been reviewed by the Securities and Futures Commission of Hong Kong. Issued by Allianz Global Investors Asia Pacific Limited.
 

 

Investment lessons from 13 geopolitical crises

03/03/2022
Investment lessons from 13 geopolitical crises

Summary

To help guide investors through the Ukraine-Russia conflict, we analysed more than a dozen similar events since 1953. Our conclusion? Underlying economic factors tend to be bigger drivers of the markets than geopolitical events – so keep a close eye on the oil price, inflation and central bank actions.

Key takeaways

  • “Buy on the sound of cannons” is an old investment adage that isn’t supported by our research into 13 geopolitical crises
  • Stocks have sometimes (but not always) done somewhat better after the onset of global crises, and “safe” assets have sold off at times, but non-crisis-related factors were the bigger drivers of performance
  • For today’s investors, inflation should remain a key concern: rising oil prices are inflationary, and central banks want to keep inflation in check
  • We remain cautious on equities for now: the markets have enjoyed years of solid performance, and the Ukraine crisis may spur additional selloffs over the coming weeks

Allianz Global Investors

You are leaving this website and being re-directed to the below website. This does not imply any approval or endorsement of the information by Allianz Global Investors Asia Pacific Limited contained in the redirected website nor does Allianz Global Investors Asia Pacific Limited accept any responsibility or liability in connection with this hyperlink and the information contained herein. Please keep in mind that the redirected website may contain funds and strategies not authorized for offering to the public in your jurisdiction. Besides, please also take note on the redirected website’s terms and conditions, privacy and security policies, or other legal information. By clicking “Continue”, you confirm you acknowledge the details mentioned above and would like to continue accessing the redirected website. Please click “Stay here” if you have any concerns.

Welcome to Allianz Global Investors

Select your language
  • 中文(繁體)
  • English
Select your role
  • Individual Investor
  • Intermediaries
  • Other Investors
  • Pension Investors
  • Allianz Global Investors Fund (“AGIF”)

    • Allianz Global Investors Fund (“AGIF”) as an umbrella fund under the UCITS regulations has within it different sub-funds investing in fixed income securities, equities, and derivative instruments, each with a different investment objective and/or risk profile.

    • All sub-funds (“Sub-Funds”) may invest in financial derivative instruments (“FDI”) which may expose to higher leverage, counterparty, liquidity, valuation, volatility, market and over the counter transaction risks. A Sub-Fund’s net derivative exposure may be up to 50% of its NAV. 

    • Some Sub-Funds as part of their investments may invest in any one or a combination of the instruments such as fixed income securities, emerging market securities, and/or mortgage-backed securities, asset-backed securities, property-backed securities (especially REITs) and/or structured products and/or FDI, exposing to various potential risks (including leverage, counterparty, liquidity, valuation, volatility, market, fluctuations in the value of and the rental income received in respect of the underlying property, and over the counter transaction risks). 

    • Some Sub-Funds may invest in single countries or industry sectors (in particular small/mid cap companies) which may reduce risk diversification. Some Sub-Funds are exposed to significant risks which include investment/general market, country and region, emerging market (such as Mainland China), creditworthiness/credit rating/downgrading, default, asset allocation, interest rate, volatility and liquidity, counterparty, sovereign debt, valuation, credit rating agency, company-specific, currency  (in particular RMB), RMB debt securities and Mainland China tax risks. 

    • Some Sub-Funds may invest in convertible bonds, high-yield, non-investment grade investments and unrated securities that may subject to higher risks (include volatility, loss of principal and interest, creditworthiness and downgrading, default, interest rate, general market and liquidity risks) and therefore may adversely impact the net asset value of the Sub-Funds. Convertibles will be exposed prepayment risk, equity movement and greater volatility than straight bond investments.

    • Some Sub-Funds may invest a significant portion of the assets in interest-bearing securities issued or guaranteed by a non-investment grade sovereign issuer (e.g. Philippines) and is subject to higher risks of liquidity, credit, concentration and default of the sovereign issuer as well as greater volatility and higher risk profile that may result in significant losses to the investors. 

    • Some Sub-Funds may invest in European countries. The economic and financial difficulties in Europe may get worse and adversely affect the Sub-Funds (such as increased volatility, liquidity and currency risks associated with investments in Europe).

    • Some Sub-Funds may invest in the China A-Shares market, China B-Shares market and/or debt securities directly  via the Stock Connect or the China Interbank Bond Market or Bond Connect and or other foreign access regimes and/or other permitted means and/or indirectly through all eligible instruments the qualified foreign institutional investor program regime and thus is subject to the associated risks (including quota limitations, change in rule and regulations, repatriation of the Fund’s monies, trade restrictions, clearing and settlement, China market volatility and uncertainty, China market volatility and uncertainty, potential clearing and/or settlement difficulties and, change in economic, social and political policy in the PRC and taxation Mainland China tax risks).  Investing in RMB share classes is also exposed to RMB currency risks and adverse impact on the share classes due to currency depreciation.

    • Some Sub-Funds may adopt the following strategies, Sustainable and Responsible Investment Strategy, SDG-Aligned Strategy, Sustainability Key Performance Indicator Strategy (Relative), Green Bond Strategy, Multi Asset Sustainable Strategy, Sustainability Key Performance Indicator Strategy (Absolute Threshold), Environment, Social and Governance (“ESG”) Score Strategy, and Sustainability Key Performance Indicator Strategy (Absolute). The Sub-Funds may be exposed to sustainable investment risks relating to the strategies (such as foregoing opportunities to buy certain securities when it might otherwise be advantageous to do so, selling securities when it might be disadvantageous to do so, and/or relying on information and data from third party ESG research data providers and internal analyses which may be subjective, incomplete, inaccurate or unavailable and/or reducing risk diversifications compared to broadly based funds) which may result in the Sub-Fund being more volatile and have adverse impact on the performance of the Sub-Fund and consequently adversely affect an investor’s investment in the Sub-Fund. Also, some Sub-Funds may be particularly focusing on the GHG efficiency of the investee companies rather than their financial performance which may have an adverse impact on the Fund’s performance.

    • Some Sub-Funds may invest in share class with fixed distribution percentage (Class AMf). Investors should note that fixed distribution percentage is not guaranteed. The share class is not an alternative to fixed interest paying investment. The percentage of distributions paid by these share classes is unrelated to expected or past income or returns of these share classes or the Sub-Funds. Distribution will continue even the Sub-Fund has negative returns and may adversely impact the net asset value of the Sub-Fund.  Positive distribution yield does not imply positive return.

    • Investment involves risks that could result in loss of part or entire amount of investors’ investment.

    • In making investment decisions, investors should not rely solely on this [website/material].

    Note: Dividend payments may, at the sole discretion of the Investment Manager, be made out of the Sub-Fund’s capital or effectively out of the Sub-Fund’s capital which represents a return or withdrawal of part of the amount investors originally invested and/or capital gains attributable to the original investment. This may result in an immediate decrease in the NAV per share and the capital of the Sub-Fund available for investment in the future and capital growth may be reduced, in particular for hedged share classes for which the distribution amount and NAV of any hedged share classes (HSC) may be adversely affected by differences in the interests rates of the reference currency of the HSC and the base currency of the respective Sub-Fund. Dividend payments are applicable for Class A/AM/AMg/AMi/AMgi/AQ Dis (Annually/Monthly/Quarterly distribution) and for reference only but not guaranteed.  Positive distribution yield does not imply positive return. For details, please refer to the Sub-Fund’s distribution policy disclosed in the offering documents.

     


    Allianz Global Investors Asia Fund

    • Allianz Global Investors Asia Fund (the “Trust”) is an umbrella unit trust constituted under the laws of Hong Kong pursuant to the Trust Deed. Allianz Thematic Income and Allianz Selection Income and Growth and Allianz Yield Plus Fund are the sub-funds of the Trust (each a “Sub-Fund”) investing in fixed income securities, equities and derivative instrument, each with a different investment objective and/or risk profile.

    • Some Sub-Funds are exposed to significant risks which include investment/general market, company-specific, emerging market, creditworthiness/credit rating/downgrading, default, volatility and liquidity, valuation, sovereign debt, thematic concentration, thematic-based investment strategy, counterparty, interest rate changes, country and region, asset allocation risks and currency (such as exchange controls, in particular RMB), and the adverse impact on RMB share classes due to currency depreciation.  

    • Some Sub-Funds may invest in other underlying collective schemes and exchange traded funds. Investing in exchange traded funds may expose to additional risks such as passive investment, tracking error, underlying index, trading and termination. While investing in other underlying collective schemes (“CIS”) may subject to the risks associated to such CIS. 

    • Some Sub-Funds may invest in high-yield (non-investment grade and unrated) investments and/or convertible bonds which may subject to higher risks, such as volatility, creditworthiness, default, interest rate changes, general market and liquidity risks and therefore may  adversely impact the net asset value of the Fund. Convertibles may also expose to risks such as prepayment, equity movement, and greater volatility than straight bond investments.

    • All Sub-Funds may invest in financial derivative instruments (“FDI”) which may expose to higher leverage, counterparty, liquidity, valuation, volatility, market and over the counter transaction risks.  The use of derivatives may result in losses to the Sub-Funds which are greater than the amount originally invested. A Sub-Fund’s net derivative exposure may be up to 50% of its NAV.

    • These investments may involve risks that could result in loss of part or entire amount of investors’ investment.

    • In making investment decisions, investors should not rely solely on this website.

    Note: Dividend payments may, at the sole discretion of the Investment Manager, be made out of the Sub-Fund’s income and/or capital which in the latter case represents a return or withdrawal of part of the amount investors originally invested and/or capital gains attributable to the original investment. This may result in an immediate decrease in the NAV per distribution unit and the capital of the Sub-Fund available for investment in the future and capital growth may be reduced, in particular for hedged share classes for which the distribution amount and NAV of any hedged share classes (HSC) may be adversely affected by differences in the interests rates of the reference currency of the HSC and the base currency of the Sub-Fund. Dividend payments are applicable for Class A/AM/AMg/AMi/AMgi Dis (Annually/Monthly distribution) and for reference only but not guaranteed.  Positive distribution yield does not imply positive return. For details, please refer to the Sub-Fund’s distribution policy disclosed in the offering documents.

     

Please indicate you have read and understood the Important Notice.