InvestorPlace
The novel coronavirus has upended society in ways big and small. The future of work is changing, our healthcare needs are evolving, and the ways we interact with entertainment are quickly shifting. Aside from Covid-19 accelerating these changes, the one common attribute among them is that they each hold huge investment opportunities. Which is why ProShares has launched its Transformational Changes ETF (NYSEARCA:ANEW).
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The ANEW ETF, which made its debut on the markets last week, tracks the MSCI Global Transformational Changes Index. It is chockful of investments in spaces including: cloud computing, IoT, bioinformatics, gene editing, esports, social media, and plant-based foods.
I had a chance to discuss the ANEW ETF with Scott Helfstein, ProShares Executive Director of Thematic Investing, about the opportunity ANEW offers investors.InvestorPlace - Stock Market News, Stock Advice & Trading Tips
John Kilhefner, Managing Editor, InvestorPlace: How does the Transformational Changes ETF fit within ProShares’ broader universe of exchange-traded funds?
Scott Helfstein, Executive Director of Thematic Investing, ProShares: ANEW is the latest addition to ProShares thematic lineup, which includes funds like ProShares Pet Care ETF (NYSEARCA:PAWZ) in pet care and ProShares Online Retail ETF (NYSEARCA:ONLN) in retail disruption, both of which have had strong years in 2020. Like the existing thematic funds, the emphasis is on powerful macro-level trends that ultimately filter down to individual companies. This fund focuses on transformational changes already underway but accelerated by Covid-19: future of work, genomics & telehealth, digital consumer, and food revolution.
InvestorPlace: As the global automation market surges, what is your expected timeline for organizational and industrial transformation?
ProShares: Most people hear doom and gloom stories about automation such as “a robot is coming for your job”. While there will be dislocation in some industries, the bigger global challenge is the looming worker shortage in the four largest economies. The U.S., Europe, Japan and China will have fewer workers as their populations age. According UN demographic forecasts, that deficit could reach 125 million by 2040. If one robot can do the work of four people, we will need 31 million industrial and commercial robots. Today there are about 3 million in use, so that would be a 12% annual increase. This is probably a multi-decade transition, but already well underway.
InvestorPlace: In what ways will technological transformations such as AI affect the nature of work and the consumer experience?
ProShares: Software such as artificial intelligence, computer learning and big data analysis is a key component in automation. Unfortunately, movies have clouded perceptions of artificial intelligence as an all-knowing computer bent on destroying humans. Most AI is focused on very simple and practical tasks. AI helps power the recommendation engine in your streaming service and makes it possible for people to virtually try on clothes or makeup without leaving home. For the first time, we can automate cognitive tasks that were simply not possible before. That said, much of the technology is not about replacing but augmenting human efforts. AI can supply better data analysis or handle the simple inquiries, freeing up people to solve more complicated problems. We will ultimately be working alongside AI systems.
InvestorPlace: Where do you believe the major opportunities are in healthcare innovation right now?
ProShares: Telehealth is getting a lot of attention now. The technology has been available for years, but adoption was slow as people were hesitant, government policy was not amenable, and insurance was not necessarily supportive. The pandemic has removed many of those impediments and the number of Americans using telehealth services tripled in 2020 to 32% according to a Harris poll. There are several other areas, though, that warrant attention. The first Covid-19 vaccine delivered to the WHO was genomic medicine using RNA, which is the single strand copy of DNA. If approved, this could be the first deployment of genetic treatment at mass scale.
InvestorPlace: In what ways will innovation in diagnostics, genetic treatments and informational management translate to the consumer experience?
ProShares: This could be wrong, but a decade or two from now, I believe that we will look back at the current state of healthcare as though it were middle ages. Genomic medicine has the potential to revolutionize diagnosis and treatment. Many illnesses that come on late in life are tied to degradation in otherwise healthy genetic code. The ability to spot dangerous mutation or deterioration early could mean treating people before they are even symptomatic, like going for one week of chemotherapy to prevent cancer from growing in the first place. Over time, we may well have the ability to splice out bad code and replace it with healthy genes using CRISPR technology. There are over 6,000 illnesses tied to genetics, and more links are continually discovered. This could usher in an era of cheaper, more efficient, and elegant approaches to healthcare.
InvestorPlace: In addition to allocating resources to Covid-19 research and development, which areas of healthcare will benefit from government-prioritized R&D spending? How will this be affected by a Biden or Trump win in November?
ProShares: Much of the Covid spending has been earmarked for hospitals and frontline medical care, but government funding has been a big driver behind basic research like genomic medicine. As of April 2020, National Institute of Health had partnered with 16 companies. I think the pandemic-related efforts in R&D would be similar irrespective of election outcome, but there could be different approaches in areas like testing and contact tracing. Both candidates have talked about lowering drug prices and regulating parts of the healthcare sector, but it is hard to see Congress aggressively moving on this issue during the crisis. Ultimately, there will likely be more regulation around pricing, but this will likely focus on older medications rather than new products. Companies on the cutting edge will probably see little impact.
InvestorPlace: What interests you most about innovation in digital consumerism?
ProShares: Everything tied to experience-on-demand from food delivery to virtual reality is really interesting, especially as we figure out how to enjoy leisure time during the pandemic. Gaming and esports is a good example of innovation colliding with changing consumer behavior. Before the pandemic, 500 million viewers were watching other people play video games. This was super-charged by the pandemic. People watched 1.8 billion hours of video gaming on the Twitch platform in April 2020, a 101% increase over the prior year. To put 1.8 billion hours into perspective, you would have to watch gaming 24 hours day, and it would take 2,740 lifetimes consume that much content. Video games is already a $60 billion industry and will continue growing rapidly.
InvestorPlace: What opportunities will be created from rising digitalization such as increased consumer data flow? Which industries stand to benefit the most?
ProShares: Better data flow, and advances in big data analysis, will allow companies to better serve customers by tailoring the experience while also creating more efficient business models. That said, data use and ownership are a complicated challenge as companies try to drive efficiency while respecting privacy. Ecommerce is one big beneficiary, and people are growing more comfortable buying online. In 2009, online accounted for 4% of total retail sales, growing to 11% by the end of 2019, a statistic that surprises many people. Penetration accelerated rapidly to 16% of total retail in the US as of mid-2020 as people responded to Covid quarantine.
InvestorPlace: Where is the market opportunity for growth in food innovation?
ProShares: This is an underappreciated story. People think about tractors and wheat fields, but the food industry will undergo major transformation across the supply chain from research to food delivery. Between now and 2050, the UN forecasts that global population will expand by 2 billion people, meaning 200,000 new mouths to feed every day. Meanwhile, 50% of the habitable land on earth is already used for agriculture. We must become more efficient, producing more with less. One area for opportunity is research and creation of new types of sustainable food like plant-based protein—Beyond Meat for example has grown at 30% annually. Another is in data analysis such as putting small RFID radio chips in cows to assess their health or identify optimal yields for crop fields. Automation will also play a role as the large tractors of the past get replaced by small self-driving vehicles.
InvestorPlace: Wall Street’s reaction to epidemics has historically been short-lived, but the coronavirus pandemic has been a “burning platform” for innovation to thrive. In what ways has this pandemic changed the ways in which we think about innovation?
ProShares: In the last hundred years, there were three prior pandemics that unfortunately produced a million or more fatalities globally. Markets may have seen big drops, but to your point, recovered reasonably quickly. The years that followed pandemics were pretty good for investors with markets up 30% to 45% over two to three years. The end of Spanish Flu coincided with the start of the Roaring 20s, another period of innovation and prosperity. Innovation was already impacting almost every industry, but companies were forced to reinvent their business models much quicker than many expected. The pandemic has accelerated that process with years of innovation now realized in a matter of months. We saw how creative and nimble companies can be, and that ups the ante on innovation going forward.
On the date of publication, John Kilhefner did not have (either directly or indirectly) any positions in the securities mentioned in this article.
In The InvestorPlace Q&A, we invite a manager to speak directly to Main Street investors, whether discussing their firm’s technologies, strategies or investments for the year ahead. Our goal is to put the spotlight on fund managers and other institutional investors of note, providing a detailed look into their management styles, world views and investing strategies. Read past interviews here.
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