The Early Innings of the Tech Revolution
Tune in to hear PGIM’s Thomas Davis discuss the magnitude of technology-driven investment opportunities.
The Global Financial Crisis and a rapid pace of disruptive innovation changed the game, COVID-19 accelerated it, and secular growth companies are poised to win it.
While the immediate economic shocks from COVID-19 have been dramatic, they likely will seem immaterial when compared to the deluge of tidal waves that have swelled up from the revolutionary innovations and permanent shifts adopted by businesses and consumers to cope with the crisis. Structural changes were well underway pre-crisis (many started around the Global Financial Crisis), but these secular trends in all likelihood will reshape global business forever because they actually accelerated during the pandemic. Need proof? Consider that the coronavirus compressed two years’ worth of digital transformation into two months, according to multiple industry estimates.
Soaring adoption rates across multiple fronts—even in once resistant areas—will likely continue post-pandemic simply because they are so convenient. As companies everywhere adapt to new realities, the gap between winners and losers will widen.
In this paper, Jennison Associates explains why they believe disruptive secular growth companies that were challenging traditional industries before the crisis will emerge as long-term growth leaders in the NEXT—New Exceptional Technologies—economy. They also provide insights on the following implications for investors to consider when constructing portfolios for the post-pandemic era:
1. Structural catalysts for innovation supercycles
A scarcity of growth from a prolonged lower-for-longer climate has catalyzed game-changing innovations that require investors to reset future expectations
2. Evolution from disruptors to revolutionary drivers of future growth
Multi-year secular shifts accelerated during the pandemic will transform disruptive companies into advanced drivers of growth in the NEXT economy
3. Intensifying impact on portfolios in a winner-takes-all world
A widening gap between winners and losers as companies adapt to new realities will benefit capital-light, tech-heavy business models with strong secular tailwinds
4. The disconnect between growth potential and investment exposure
Despite secular growth companies exhibiting greater strength and resilience, many passive and global equity categories are underallocated to these groups, forgoing critical sources of portfolio alpha
5. Rethinking traditional allocations to include active secular growth exposure
In a rapidly changing world where there is no passive substitute for deeply experienced managers able to consistently identify future market leaders, investors should consider including a dedicated secular growth component in their portfolios
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