𝗣𝗼𝘀𝘁 𝗖𝗼𝘃𝗶𝗱-𝟭𝟵 𝗜𝗻𝘃𝗲𝘀𝘁𝗺𝗲𝗻𝘁 𝗧𝗿𝗲𝗻𝗱𝘀: 𝗜𝗻𝗻𝗼𝘃𝗮𝘁𝗶𝗼𝗻 𝗖𝘆𝗰𝗹𝗲𝘀
Over the next five years, global innovation intensity of all economic activities is likely to rise. During the early stages of the pandemic, pace of global innovation slowed down significantly, as companies were entering a period of severe uncertainty concerning the speed and the timing of the recovery. Since then, however, we have seen a robust recovery in R&D and new products development. One of the areas where this acceleration is most evident is a dramatic shift in the automotive sector. Since the start of 2021, we have seen a major increase in competition in the markets for electric vehicles, with all major car manufacturers now scaling up the depth (across the range of models) and the breadth (across the share of EVs in total production) of their output.
Across the economy, patent applications have been booming. In 2020, U.S. Patents Office issued 0.5 percentage points fewer patents than in 2019. Which was remarkable, given the state of the economy and the shock to corporate investment at the time. But the ratio of patents filed to those approved went up from 58 percent in 2019 to 60 percent in 2020. In fact, last year’s approval rate was the highest since 1998. In other words, quality of innovation seemed to have improved. Since the start of 2021, preliminary data suggests that we are on track
to post a record year of patents approvals.
Adding fuel to the fire, historical trends suggest that following an onset of a new economic growth cycle post-recession, innovation across the economy accelerates. The last such cycle in innovation took place in 2010-2013. If the same dynamics play out in the later parts of 2021 and into 2022, by the mid-point of this decade we can see more than 540,000 patents approvals per annum – a rate that would represent a 55 percent rise on the average annual rate of patents approvals for the 5 years through 2019. There is a lot of uncertainty around this forecast, but these numbers do not account for potential acceleration in innovation due to increased public funding of R&D and all other factors currently at play and discussed in this article.
One way or the other, increasing innovation share in overall economic value added is a good news for investors with a long-term holding horizons and a stomach for risk. More specifically, for younger investors. Currently, these investors are being ill-served by the traditional asset managers promoting stale 60:40 models and traditional portfolio management tools. They are equally poorly served by the herd mentality driving them into informationally opaque and poor quality markets for ‘meme-vestments’, like Reddit and Quora chat groups. Smarter asset managers who can tap these generations’ investing appetite and potential will be able to capitalize on both, their dollars and the opportunities for aggressive growth-focused portfolios construction that the new markets are likely to support in the near future.
A feedback loop between general innovation intensity of economic growth (point two) and the prospect for new investment in healthcare, pharma, biotech and medical devices sectors (point one above) is a natural emerging sub-trend. Over the pandemic period, consumers dramatically accelerated shift from bricks-and-mortar services to online and remote services platforms. This shift was present not only in the traditional retail sector, but also in medicine. Most heavily impacted by this shift are general practitioners. Back in the early 2010s, many in the data and analytics sector recognized the potential for technology-driven deep disruption in family physicians’ business models. Poor development of AI at the time, plus demographically-driven ‘stickiness’ of consumers to their existent service providers held back development of this disruption. Covid19 lockdowns forced the change in the way we see our future engagements with healthcare providers, especially when it comes to routine tasks performance and early stage diagnostics. Remote health, wellness and health maintenance services all are likely to show a step change in the rates of consumer adoption in years to come. Which will be bad news for many GPs and pharmacists, and great news for AI and data-intensive start ups, as well as established players in the sector, such as larger hospitals groups and even larger health insurers.