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Thematic investing

The digital revolution has only just begun

March 2017

The digital revolution is gaining momentum. Improvements in algorithms and artificial intelligence will change the character of most industries.

For most people in the developed world it feels like a large part of their daily life has
already shifted to the digital world. The average person in the United States spends
almost 6 hours a day online; they spend more than half of that time online through a
smartphone or another mobile device (eMarketer, 2016). According to Sylvie Sejournet,
manager of the Picet-Digital fund, the digital revolution has only just begun: ‘Online
payments represent less than 1% of the total global payments of over $54.000 billion.
And only 9% of global retail sales are conducted online. Even in the advertising industry,
which is known for its online progress thanks to companies like Google and Facebook,
the online penetration is less than 30% (IDC 2016, Federal Reserve 2015; eMarketer
2014; Euromonitor 2015). In short: for companies in these sectors considerable growth
is to be expected.’

The ammunitions of digital companies

The increasing penetration of smartphones and other internet connected devices will
lead to an acceleration of the digital trend. As a result of the increasing use of social networks, the growth of online video and the rise of the Internet of Things (IoT),
companies have the opportunity to gather more and more data. At the same time, the
development of new technologies and the improvement of the existing ones allows
companies to make better use of that data. ‘Data is the ammunitions of digital
companies, while powerful algorithms and artificial intelligence are their weapons’, says
Sejournet.
New technologies allow companies to make better use of data
The combination of the increasing amount of data with the improvements in algorithms
and artificial intelligence (AI) can be expected to cause huge shifts in almost every
industry. ‘Just think of the way robo-advisors and technologies such as blockchain are
already changing the financial sector’, tells Sejournet: ‘And in the healthcare industry,
doctors will get all kinds of new tools to make a diagnosis and to communicate with
patients. In the United States, a company named Teladoc already provides a platform
like Skype for doctors.’

Significant growth potential for digital investments

Despite the obvious advantages of these new technologies, companies are still reluctant
to fully embrace digital technologies. Of the total healthcare spending of $3.000 billion in
the United States, only 3% is dedicated to information technology (IT) in hospitals and
doctor’s offices. Of these investments, almost nothing is spent on digital software.
The digital transition will lead to a huge shift in many market segments, including healthcare
This segment is expected to experience a significant growth in the upcoming years (Piper
Jaffray, 2016). In the financial industry, an average of 10% is dedicated to IT. However,
by far the largest part of these spendings is related to old and legacy IT-systems. Only
2% of banks technology investments is related to fintech (Accenture, 2016;
IDC/FACTSET). ‘In terms of the opportunities which digital can offer, we are barely scratching the surface’, concludes Sejournet. ‘The digital transition will lead to a huge shift in many
market segments, like the financial industry, the technology sector and among
healthcare companies. For solid positioned companies in these sectors there will be
plenty of room for growth. Will our future look like in that movie, Minority Report? In my
opinion, the answer is definitely yes!’

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