Also Read: Part Two
The world is a rapidly changing place. The reason things seem to change at a faster and faster rate is because technology drives the creation of even more technology. This is what results in exponential growth, allowing humanity as a species to become more productive and live higher quality lives.
For example, the advent of electricity was a quantum leap forward, allowing a single human worker to be far more productive than when the only power tools available ran on steam power.
The investor who could invest in electrical industries at that time was rewarded handsomely with phenomenal stock growth. Similar returns were made by investors in the cell phone industry in the early 90s or internet-based companies in the 2000s.
The question then remains, what industries are going to be the next big thing?
There is no simple answer to this, thus I have highlighted four sectors which I think have massive potential for outsized returns. These industries are:
- Robotics/artificial intelligence/machine learning
- Marijuana industry
Before we dive into the specific industries, it is important to note how you would gain exposure to them? You could purchase shares in the individual companies, but as a South African retail investor, this is often quite difficult. The simplest solution would be to purchase ETF’s which track these industries. This not only spreads your risk, by being invested in multiple companies, but it also allows you to build a portfolio which is easy to track in terms of returns.
Robotics, artificial intelligence and machine learning
The automation of repetitive tasks is the primary goal of technology. Thus large companies which are invested in producing high-tech items such as software and computational hardware will most likely be leading this charge. This is an industry which is not going away any time soon, and as the speed of computer processors increases and the cost of production decreases, we can expect their profits to keep rising. Apple is a prime example of this, and has recently been crowned the world’s first trillion-dollar company.
There are numerous ETFs which I find track this industry quite well. Returns since 2016 have been in excess of 81%:
Figure 1. Technology index ETF since Jan 2016
Biotechnology and pharmaceuticals
Pharma companies have long been known to produce large profits. As the global population grows, the spread of medicines and health care will increase. However, there are some pharma companies which are heavily invested in biotechnology. This sector promises to deliver many advances in medical science, since the scientific understanding of genomics has rapidly been advancing. This field has only become viable in the last 10 years, with the advent of rapid and cheap analysis of the human genome. As such I expect to see many drugs coming to the market in the next few years which utilise the latest findings. Gene-specific drugs and medicines which are created for the genome of the individual, rather than the target population, will gain traction.
Since 2012 the biotech industry has yielded investors 300% gains.
Figure 2. Biotech index ETF since Jan 2012
Legalisation of the marijuana industry in North America has led to massive growth booms in both Canada and the United States. There are many companies who are operating in this space and as talks relating to decriminalising the plant federally in the USA proceed, we may see a country-wide boom take place. A reference to growth can be seen simply by investigating the local economies of states which have already legalised the plant, including Colorado, California and Nevada. According to government statistics from the state of Colorado, the marijuana industry in the state is worth $1.5 billion per year.
Recreational use of marijuana is the lowest hanging fruit in this sector. What really excites me is the industrial uses of hemp which will be pursued following the legalisation of the plant, as well as the medical uses of the active compounds within the plant. Studies have already shown significant promise in this department.
The industry has yielded over 100% in returns over the last year. Compared to the S&P index, which had a good year last year, yielding near to 15%.
Figure 3. Marijuana index ETF(black) over the last year vs the S&P500 index (yellow).
Most people are familiar with the absolutely meteoric rise of Bitcoin and cryptocurrencies over the last few years. Bitcoin rose from $1000 at the start of 2017 to almost $20 000 by December. This was followed by a large correction, but the price is still trading above $6000, which is more than a 600% return over the past 18 months.
Figure 4. Bitcoin price since Jan 2017
Cryptocurrencies are a very complex topic, but the take-home message of them is this: They are here to stay. Thus gaining exposure to them in a limited measure is a good way to add upside potential to your portfolio.
Diversifying between Bitcoin and Ethereum is a simple strategy to gain exposure to the entire market, as they serve as proxies for the cryptocurrency market in general.
Figure 5. Ethereum price since Jan 2017
How do I get exposure to these sectors?
There are very few options available for South Africans to get exposure to these assets. You either have to be an extremely high net worth individual to be able to trade on platforms with high minimums, or you require a foreign passport. This is very frustrating, as these opportunities are passing us by.
However, at Sharenet, we are able to set you up on a trading platform so that you can gain exposure to every one of these ETFs today! The minimum account size is R50 000.
Contact us today to get started, and our team of stockbrokers will tell you which ETFs we have used in this study and how to buy them.
Also Read: Part Two
Ricki specializes in the field of wealth management with a focus on holistic financial planning. He has a keen interest in the investment fields of property, technology, precious metals and cryptocurrencies. Ricki also holds a Masters degree in Science from the University of Stellenbosch.