Investing In Innovation

Change is happening rapidly, active management helps us identify and capitalize on significant inflection points.

Matthew J. Moberg

Matthew J. Moberg Senior Vice President, Portfolio Manager, Franklin Equity Group

Preview

I looked at my iPhone after a run in Central Park. Good. 57 minutes, and for 33 my heart rate was over 160 beats per minute. I had achieved my daily fitness goal. I pressed “save” on my app so I can monitor my fitness levels over time. I had a small headache and had just bought a blood sugar monitor, so I checked my app and saw that my blood sugar was normal. Also good. My headache was probably from thirst, and I know that sugar headaches take me much longer to recover from than dehydration headaches. My hotel was downtown, so I grabbed an Uber. Getting into the car, my phone alerted me I could check in to tomorrow’s flight to San Francisco. The flight was on time. I checked in. In the cab, I watched a few stories from friends in social feeds. I was reminded to text my friend to see what time we’d have dinner. I made a quick reservation at a Mexican restaurant in SoHo recommended by a location-based app. Traffic wasn’t great, so I absently looked at e-mail and saw that the maker of the cement bookends I really liked was willing to make me three more. I bought them. Arriving at the hotel, I quickly hopped out of my Uber, having already paid the driver through the app. I recalled reading that the average US adult spends 5 hours on their phone. I thought that sounded high, but wondered if it were true…

Over the last decade, smartphones have revolutionized our lives in ways that go well beyond mere audio communication. In addition to Facetime video chats, texting and emailing, billions of people globally use smartphones to shop online, check the weather, hail taxis, navigate, monitor their health, invest, play games, date, find friends, watch movies, listen to music, take pictures and participate in social media.

This is quite remarkable when you think about it—an innovation impacting the world so pervasively that it has transformed our lives in such a short time. Recall it was just thirteen years ago that Steve Jobs—wearing his iconic black turtleneck on the stage of the Moscone Convention Center—introduced the world to the smartphone.

Smartphones are only one example of the many new products and technologies exploding into the economy in recent years. We’ve seen significant breakthroughs in biotechnology, robotics, artificial intelligence, genomics, wireless data speeds, 3D printing, autonomous vehicles, cloud computing, e-commerce and more. Innovation is everywhere. As investment managers we’ve witnessed many concepts surge in popularity, and we’ve learned from many that have failed. Industry and technology continue to evolve, creating a rich backdrop for investors.

Three Takeaways

  • Innovation drives long-term wealth creation and is accelerating
  • We believe investing in innovation requires active management
  • Innovation is everywhere: five platforms of growth

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WHAT ARE THE RISKS?

All investments involve risks, including possible loss of principal. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Special risks are associated with foreign investing, including currency fluctuations, economic instability and political developments. Investments in emerging markets involve heightened risks related to the same factors, in addition to those associated with these markets’ smaller size and lesser liquidity. Investments in fast-growing industries like the technology sector (which historically has been volatile) could result in increased price fluctuation, especially over the short term, due to the rapid pace of product change and development and changes in government regulation of companies emphasizing scientific or technological advancement or regulatory approval for new drugs and medical instruments. The companies and case studies shown herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton Investments. The opinions are intended solely to provide insight into how securities are analyzed. The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Franklin Templeton managed portfolio. This is not a complete analysis of every material fact regarding any industry, security or investment and should not be viewed as an investment recommendation. This is intended to provide insight into the portfolio selection and research process. Factual statements are taken from sources considered reliable but have not been independently verified for completeness or accuracy. These opinions may not be relied upon as investment advice or as an offer for any particular security. Past performance does not guarantee future results.