Embracing Disruption

Tapping into the potential of thematic investing

Discover how an unconstrained thematic investing approach can help participating in the growth prospects resulting from an all-encompassing disruption.

Key takeaways

  • In a world shaped by fundamental societal, environmental, and technological shifts an unconstrained thematic investing approach can help identify multiple new angles for participating in the growth prospects resulting from an all-encompassing disruption that is set to shape every aspect of our daily lives.
  • We analyse several drivers behind disruptive megatrends and discuss their impact on and implications for the investable themes within our Thematic Investing strategy.
Energising a growing power demand in a sustainable way

With a constantly growing appetite for energy, not least driven by the thirst of a continuously swelling number of data centres needed for the training of (large) artificial intelligence applications and to cover our increasing reliance on a digital infrastructure, smarter and more sustainable energy generation and energy storage solutions can help both satisfying a developing energy demand and avoiding greenhouse-gas (GHG) emissions.


Exhibit 1: Demand for electricity will double by 2050

Exhibit 1: Demand for electricity will double by 2050

Source: New Energy Outlook 2019, BNEF 2019. June 2019.


Here, the further proliferation of more sustainable energy production and storage solutions, and the build-out of renewable energy capacities, can set the course towards natural-resources-saving ways of how energy is produced, consumed, and saved, fostering the electrification of public and private transport.


electric-car-charging

Combined with falling producer prices in key sustainable energy technologies and markedly lower costs for energy from sustainable sources, the greater penetration of renewable energy will also boost large-scale investment into renewable technologies and strengthen their competitiveness in the long run.


Exhibit 2: Global levelised cost of electricity benchmarks, 2009–2023, USD/MWh (real 2022)
Exhibit 2: Global levelised cost of electricity benchmarks, 2009–2023, USD/MWh (real 2022)

Source: BloombergNEF. As of June 2023.


Finally, prominent advocates for an accelerated development of energy efficiency and sustainable energy solutions – such as last year’s COP 28 pledge to triple renewable energy capacity globally and to double the global average annual rate of energy efficiency (from 2% p.a. to 4% p.a.)1 – can give an additional boost to the expansion of renewables.


renewable-energy-farm

An impressing proof of a significant clean-energyaugmentation is reflected by the wind- and solar energy additions in Texas in California in 2022, catapulting the “Lone Star State” and the “Golden State” to the top two places for US-wide clean energy additions.

Exhibit 3: Texas and California, frontrunners in clean clean power additions in 2022
Exhibit 3: Texas and California, frontrunners in clean
clean power additions in 2022

Source: American Clean Power CLEAN POWER ANNUAL MARKET

Artificial Intelligence, a cross-sector catalyst that has the potential to disrupt industries and enlarge its share of value added (Digital Life)

With their growing significance and increasing proliferation, large language models like ChatGPT, and artificial intelligence (AI) in general, have become an integral part of our everyday life. They are already profoundly shaping the way we live, work, produce, communicate, and collaborate. And this is only set to accelerate.

While AI’s integration in core business processes is gaining momentum across all industries, the transformation of selected sectors may be more marked.

  • Building multi-layered lines of defence for business processes, data, and IT infrastructure: with the integration of automated threat detection, malicious patterns prediction, accelerated data protection and risk-based conditional access features, AI-enabled cyber security solutions – a market projected to grow at a double-digit compound annual growth rate (CAGR) of 19.4% between 2023 and 20322 – can help protect companies from sophisticated cyber-threats.

  • Regulatory framework to foster global cyber security market growth: cyber security regulations like the in December 2023 by the US Securities and Exchange Commission (SEC) adopted new disclosure requirements for cyber incidents are likely to further raise companies’ priority and budget focus on regulation-compliant security.

artificial-intelligence-factory
Building the backbone for digital lifestyles

A growing urban population that by 2050 is forecasted to account for more than two thirds of the world’s inhabitants3, is facing acute challenges like inadequate urban infrastructure, rising levels of pollution, growing water and energy consumption, and surging social inequalities. Addressing these pressing challenges means to foster the further build-out of smart cities with more efficient and more sustainable infrastructure. This is even more the case when considering the economic weight of the world’s cities that are responsible for more than 80% of global GDP4 and forceful drivers of a prospering global smart cities and smart building market projected to reach nearly USD 7 trillion by 20305 and USD 127 billion by 20276 respectively.

So, speeding up the build out of smart cities requires innovative transport solutions. Furthermore this also implies to augment digital solutions for a real-time assessment of critical resources like energy and water, for instance by integrating sensors and real-time data for leak detection and predictive analytics, and to extend smart communication infrastructure as the backbone of digital lifestyles.

Paving the way for sustainable water solutions

Investments in solutions that focus on improving the resilience of strained natural freshwater resources, such as aquifers and groundwater reservoirs, are among the most important levers to ensure water provision for an ever-growing global population, with correspondingly higher food and energy demands, both of which heavily rely on sufficient water supplies.


growing-water-demand


artificial-intelligence-farm
AI’s transformational impact on industrial automation and production

With their growing significance and increasing proliferation, large language models like ChatGPT, and artificial intelligence (AI) in general, are already profoundly shaping the way we live, work, produce, communicate, and collaborate. And this is only set to accelerate.

While AI’s integration in core business processes is gaining momentum across all industries, the transformation of selected sectors may be more marked.

  • Next evolutionary step in industrial automation: AI-powered digital twins can help improve automated factory production lines – from automotive to food production to retail – while cutting down on labour costs, enhancing efficiency, reducing redundancies, and improving throughput.

  • AI delivering long-term value to the semiconductor industry: according to a recent McKinsey survey7, semiconductor companies could massively benefit from deploying AI, potentially adding an annual value of up to USD 95 billion over the long term.

artificial-intelligence-semiconductor
From health care to patient-tailored treatments

Translating the disruptive potential of AI into the health sector means transforming a one-size-fits-all approach into individually tailored health services based on patients’ personal needs and history. In addition to improved patient experiences, the integration of AI into the health care sector can also contribute to significantly accelerated drug discovery processes, eliminating time– consuming trial-and-error and contributing to considerable cost savings. Not least, using AI-enabled solutions can help detect diseases earlier or even prevent them, foster the further development of robot-assisted minimally invasive surgery, and reduce patient travel for minor diagnoses or follow-ups by means of telemedicine/ telehealth applications.

  • Advancing health tech though with room for improvement: following a recent OECD study, over half of OECD countries are still badly prepared to embrace the digitisation of their health systems. While almost 90% stated to have an online health portal available, in only 42% of the countries the public could both access and interface with all their health-related data through the designated portal8.

  • AI, mHealth and governmental digitisation efforts driving health tech growth: according to analysts, the global smart healthcare market is expected to reach a value of USD 482 bn by 2027, more than doubling the USD 216.63 billion reported for 2022 and expanding at a double-digit pace of 19.70% annually over the next three year9.

The main drivers behind this robust growth can be identified in AI applications such as AI-enhanced conversational agents and virtual assistants, in the rise of wearables/mobile health applications like blood glucose levels monitoring sensors and, not least, in more and more governments expanding funding for health tech research and development.

  • More info, more income, higher demand for longterm care: the baby-boomer generation (adults born between 1946 and 1964) today represents the largest population segment in many countries. In the US, this birth cohort makes up around 70 million of the total population, the second-largest generation group behind Millennials (approx. 72 million)10 holding 70% of all disposable income and projected to have over USD 53 trillion in wealth in 2030, equivalent to around 45% of all household wealth11.

  • Within the baby-boomer generation, multimorbidity (living with two or more chronical/long-term health conditions) is the “big elephant in the room of […] health care systems12” driving both healthcare expenditures and the demand for medical resources far above current levels. However, the baby-boomer generation, in contrast to widespread perceptions, are embracing technological innovation, with studies saying almost three third of them actively engage with digital healthcare activities.

group-holding-hands
How the rise of Gen Well opens up new business opportunities

Gen Z (born between 1997 and 2012) and Gen Y/ Millennials (born between 1981 and 1996) together now make up about 40% of the global population and 50% of the global workforce13. Gen Z is expected to surpass the Boomer generation (born from 1946 to 1964) as a percentage in the workforce in 2024 implying a significant cultural shift. This socio-demographic megatrend opens new opportunities for companies, that can adjust to fundamentally changing consumption patterns across the age cohorts.

  • Most diverse, educated, connected, and most socially conscious. Both, Gen Z and Gen Y/Millennials have different values, preferences and behaviours, than older generations, and they are reshaping the world to their image as they move into decision-making positions within companies and politics. With a particular focus on quality over quantity and conscious and mindful consuming patterns, these generations prioritise experiences, sustainability, and social responsibility in their buying habits.

  • Companion Animals – Pets are the new children. Millennials and Generation Z are at the forefront of the trend of humanisation of pets, having grown up with pets and considering them essential family members. They prioritise the health and well-being of their pets to a higher degree than previous generations and demonstrate a willingness to spend more on high-quality health care, nutrient-rich food, and premium services, offering several investment angles to participate in this growth.
Bottom line

While the disruptive forces behind the megatrends remain intact, individual drivers of these fundamental shifts may change, both in terms of their weighting and their socioeconomic significance. In this context, it is even more important to diversify and to precisely identify those themes that will benefit most from the major transformations of our time and make them investable for investors.


working-on-laptop
  • Disclaimer
    Investing involves risk. The value of an investment and the income from it will fluctuate and investors may not get back the principal invested. Past performance is not indicative of future performance. This is a marketing communication. It is for informational purposes only. This document does not constitute investment advice or a recommendation to buy, sell or hold any security and shall not be deemed an offer to sell or a solicitation of an offer to buy any security.

    The views and opinions expressed herein, which are subject to change without notice, are those of the issuer or its affiliated companies at the time of publication. Certain data used are derived from various sources believed to be reliable, but the accuracy or completeness of the data is not guaranteed and no liability is assumed for any direct or consequential losses arising from their use. The duplication, publication, extraction or transmission of the contents, irrespective of the form, is not permitted. This material has not been reviewed by any regulatory authorities. In mainland China, it is for Qualified Domestic Institutional Investors scheme pursuant to applicable rules and regulations and is for information purpose only. This document does not constitute a public offer by virtue of Act Number 26.831 of the Argentine Republic and General Resolution No. 622/2013 of the NSC. This communication's sole purpose is to inform and does not under any circumstance constitute promotion or publicity of Allianz Global Investors products and/or services in Colombia or to Colombian residents pursuant to part 4 of Decree 2555 of 2010. This communication does not in any way aim to directly or indirectly initiate the purchase of a product or the provision of a service offered by Allianz Global Investors. Via reception of this document, each resident in Colombia acknowledges and accepts to have contacted Allianz Global Investors via their own initiative and that the communication under no circumstances does not arise from any promotional or marketing activities carried out by Allianz Global Investors. Colombian residents accept that accessing any type of social network page of Allianz Global Investors is done under their own responsibility and initiative and are aware that they may access specific information on the products and services of Allianz Global Investors. This communication is strictly private and confidential and may not be reproduced, except for the case of explicit permission by Allianz Global Investors. This communication does not constitute a public offer of securities in Colombia pursuant to the public offer regulation set forth in Decree 2555 of 2010. This communication and the information provided herein should not be considered a solicitation or an offer by Allianz Global Investors or its affiliates to provide any financial products in Brazil, Panama, Peru, and Uruguay. In Australia, this material is presented by Allianz Global Investors Asia Pacific Limited (“AllianzGI AP”) and is intended for the use of investment consultants and other institutional /professional investors only, and is not directed to the public or individual retail investors. AllianzGI AP is not licensed to provide financial services to retail clients in Australia. AllianzGI AP is exempt from the requirement to hold an Australian Foreign Financial Service License under the Corporations Act 2001 (Cth) pursuant to ASIC Class Order (CO 03/1103) with respect to the provision of financial services to wholesale clients only. AllianzGI AP is licensed and regulated by Hong Kong Securities and Futures Commission under Hong Kong laws, which differ from Australian laws.

    This document is being distributed by the following Allianz Global Investors companies: Allianz Global Investors GmbH, an investment company in Germany, authorized by the German Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin); Allianz Global Investors (Schweiz) AG; Allianz Global Investors UK Limited, authorized and regulated by the Financial Conduct Authority; in HK, by Allianz Global Investors Asia Pacific Ltd., licensed by the Hong Kong Securities and Futures Commission; in Singapore, by Allianz Global Investors Singapore Ltd., regulated by the Monetary Authority of Singapore [Company Registration No. 199907169Z]; in Japan, by Allianz Global Investors Japan Co., Ltd., registered in Japan as a Financial Instruments Business Operator [Registered No. The Director of Kanto Local Finance Bureau (Financial Instruments Business Operator), No. 424], Member of Japan Investment Advisers Association, the Investment Trust Association, Japan and Type II Financial Instruments Firms Association; in Taiwan, by Allianz Global Investors Taiwan Ltd., licensed by Financial Supervisory Commission in Taiwan; and in Indonesia, by PT. Allianz Global Investors Asset Management Indonesia licensed by Indonesia Financial Services Authority (OJK).

    LDS-240092

Recent insights

Embracing Disruption

The “Internet of Things” (IoT) has made strong progress over the past decade, with connected devices now commonplace across both households and industry. However, in terms of the promises of IoT translating into tangible productivity gains, we have seen some bumps in the road to wider adoption, not least among systems providers seeking sustainable models for monetizing this quickly developing technology.

Discover more

Navigating Rates

Many of the major central banks (excluding Japan) are beginning or set to begin interest rate-cutting cycles this year. Here are four fixed income themes we believe could present investors with opportunities during the remainder of 2024.

Discover more

Modi’s victory, and the continuation of the reform agenda his government has embraced, should further strengthen the trajectory towards an ‘Emerging New India.

Discover more

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.