Over the past century, the global economy has transitioned from being dominated by agriculture and manufacturing to being powered primarily by services. Services now represent three-quarters of the workforce in developed markets and two-thirds of global GDP.
Since World War II, services have been transformed by shifting consumer and corporate preferences, technological change, and globalization. But after a 20-year period of relative stability, services are now once again at the cusp of a major disruption.
Advances in technologies such as cloud computing, artificial intelligence and machine learning are radically reshaping winners and losers across the service sector in both developed and emerging markets – and at an even faster pace after the COVID-19 pandemic.
This technology transformation will allow new entrants to disrupt key components of the services value chain. At the same time – and to a greater extent than in manufacturing and retail – a select group of technology-forward incumbents will benefit from some unique features of the services sector (such as client acquisition costs and regulatory complexity) to survive, and even thrive, during the process of creative destruction ahead of us.
To understand the investment implications of this next revolution in services, PGIM has drawn on the insights of more than 70 investment professionals across PGIM’s fixed income, equity, real estate, private credit, and alternatives managers – as well as leading academics, technologists, industry analysts and venture investors. PGIM focuses its investment lens on the three sectors that represent the vast majority of the services sector and 35% of the MSCI ACWI: financial services, healthcare, and transportation and logistics. PGIM's analysis reveals the hidden risks and emerging investment opportunities in services across public and private asset classes in both developed and emerging markets.
PGIM believes investors who fully recognize the multiple pathways through which technology is transforming the global services sector will be best positioned to navigate the rapidly shifting investment landscape.