Themes are the key to understanding which companies could excel and why. Our team analyzes global trends, problems, and potential solutions — for example, the rise of e-commerce and payment processing or the emergence of 5G and the Internet of Things. We look for companies with traits that might be structural qualities that let them outmaneuver competitors, or other qualities that make them disruptors.
Explore how we build and manage this ETF around this set of durable themes.
5G stands for fifth-generation wireless technology, which will increase speed and responsiveness and will allow users to connect to more devices at once. The transition to 5G will play out in waves globally over the next 15 years. The “Internet of Things” is a term that describes the growing number of devices, from phones to wearable products to home security systems, that are connected to the internet and to one another.
The rapid growth in connected devices and systems will drive carriers to invest rapidly in 5G networks.
American Tower (AMT)
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American Tower (AMT)
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Peer-to-peer electronic money transfers have rapidly become much more common and accepted. E-commerce transactions and one-button checkout are taking share from cash and physical card payments. The U.S. e-commerce market has grown at 16% annually since 2001, well ahead of aggregate retail sales during the same time period.
As of the end of 2018, there were more than 80 million mobile phone peer-to-peer payment users in the United States, according to market research firm eMarketer.
PayPal Holdings (PYPL)
PayPal enables businesses and individuals to electronically transfer money and has benefited from the rapid adoption of digital payments.
By 2040, U.S. e-commerce retail sales could well surpass brick-and-mortar store sales. The influence of e-commerce is often referred to as “the Amazon effect” — the pressure placed on traditional retailers from online competition. Amazon’s platform has caused disruption and share loss for legacy retailers — a trend that we expect to continue well into the future.
As Amazon continues disrupting business models and industries, we are working to find companies with niche products or services that give them a competitive edge.
In the context of Amazon’s influence, we look for retailers with differentiated offerings that do not translate well to an e-commerce model. For example, those with products that are too heavy, products that need frequent and fast deliveries or returns, or services that are difficult to replicate in a digital setting.
An increasing number of retail brand owners are favoring direct distribution — selling their products solely through their own stores or websites. These companies have few, if any, third-party distributors or indirect sales. They rarely have markdowns or outlet stores, and their products won’t be found at online retailers like Amazon. The advantage of this business model is that it allows businesses to better control inventory, pricing, promotion, and brand presentation. It also leads to a better, more comprehensive relationship with end customers. As a result, direct sales typically yield higher margins than wholesale, with higher conversion rates.
In our research, one key question we ask is how companies sell and distribute their products and services. Controlled distribution can offer a distinct advantage and is our preferred go-to-market strategy.
Lululemon Athletica (LULU)
Athletic clothing retailer Lululemon employs a direct distribution model and plans to double its digital sales over the next five years.
We are in the very early innings of a shift toward a broader application of personalized medicine, where therapies will be targeted to a particular patient based on that individual’s DNA, RNA, and genetic composition. Many companies are making great strides in cell and gene therapy to help in the diagnosis and treatment of cancers and genetic diseases.
A patient’s genetic makeup will likely become increasingly more important in the therapy and treatment they receive.
Lonza (LONN SW)
Lonza manufactures small- and large-molecule therapies, and opened the world’s largest dedicated cell and gene therapy facility in 2018.
The Covid-19 pandemic brought significant change in areas such as consumer-purchasing preferences, human communication, and workflows. We focus on identifying long-term beneficiaries in a post-pandemic world. For example, many businesses that have been resilient and strong during the crisis have become even stronger, taking market share and further cementing their competitive moats.
Danaher develops leading-edge diagnostic tools.
Actual results may vary.
Electric vehicle penetration is less than 3% today, and self-driving vehicles are only in the testing phase. Still, the revenue opportunity for semiconductor companies that supply these end markets is already meaningful and growing at above-market rates.
Beyond autonomous driving, semiconductors are used for a range of features in cars, such as cameras, sensors, and internet connections. The rollout of 5G wireless will increase semiconductor demand for automobiles.
NVIDIA produces graphics processing units (GPUs) that are used for gaming and entertainment as well as artificial intelligence.
Businesses are increasingly shifting their information technology systems from on-premise databases to cloud storage. The benefits are widely recognized and include reduced costs, enhanced data security, better collaboration, and greater flexibility for employees accessing company documents and data.
The demand for cloud computing is on the rise as more businesses find it essential to transition their on-site data systems.
While Amazon was a clear first mover in the cloud space, Microsoft is proving to be a fast follower with Azure.
Actual results may vary.
People are spending considerably more time consuming content on electronic devices. In 2019, for the first time, U.S. consumers spent more time with their mobile devices than they did watching TV, according to eMarketer. Smartphones account for 70% of that mobile time. Mobile device usage is growing rapidly as streaming platforms, newly created apps, social media, gaming, and targeted advertising campaigns increasingly cater to consumers outside the home.
American adults spent about 3 hours and 30 minutes a day using the mobile internet in 2019, an increase of about 20 minutes from a year earlier, according to measurement company Zenith.
Disney should be able to replicate what Netflix has accomplished with its direct-to-consumer streaming services, which include Disney+/Star, ESPN+, and Hulu.
Digital marketing — promoting products or services through electronic devices — is imperative for business success. One key driver of this investment is the desire to capture and use customer data to drive better business outcomes, such as sales conversion and brand awareness. Many more businesses are making substantial investments to upgrade their digital infrastructure.
Companies are recognizing the increasing importance of social media, mobile applications, email, search engines, and websites for driving the growth of their businesses.
Adobe enables digital content creation by providing software tools for creative professionals and marketers.
Actual results may vary.
Pets have become an increasingly important part of the typical household, receiving the same level of attention, care, and health maintenance as human family members do. Preventative-care treatments and testing for companion animals are growing, along with overall pet ownership levels. Consumer demand for these services is unwavering, and the diagnostic market outside the United States provides another long-term opportunity for growth.
With this theme, we seek to capitalize on the strong and rapidly growing demand for quality pet care.
Idexx Laboratories (IDXX)
Idexx is an animal healthcare company specializing in diagnostic testing, including in-office testing kits for veterinarians.
This theme is based on a growing preference for experiences over material possessions. More consumers are seeking to spend money on live entertainment and events, luxury travel and destinations, or interactions within social communities.
We believe the appeal of experiences has become more widespread after the pandemic lockdowns in 2020. This demand, combined with higher levels of personal savings, should help a number of businesses grow at above-market rates for an extended period of time.
Airbnb is an online vacation rental marketplace with a strong brand and industry leadership.
Market commentary is not intended to be relied upon as a forecast, research, or investment advice, and is not a recommendation, offer, or solicitation to buy or sell any securities or to adopt any investment strategy. Stock stories are intended to help illustrate the investment process and should not be considered a recommendation to purchase or sell any security. It should not be assumed that any investment in these companies was, or will prove to be, profitable, or that the investment decisions we make in the future will be profitable or equal to the investment performance of companies referenced herein.See PGRO complete list of holdings