While the strength and breadth of growth in 2017 are significant, as my colleague Olga Bitel explained in an earlier post, there are a number of other trends that might set the agenda in 2018 and beyond, and technology is one of them.

Certainly, Bitcoin is part of that discussion. Many believe Bitcoin is a bubble, but I like to joke that the definition of a bubble is something going up that we do not own. And blockchain, the distributive technology behind Bitcoin, is very disruptive.

Self-learning will have significant implications that we do not want to overlook.

Artificial intelligence was also a theme in 2017. In Saudi Arabia, Sophia became the first robotic citizen. AlphaGo Zero, a self-learning program that was taught only the rules of chess, beat all grand masters within 24 hours. Factory automation and robotics have been some of the strongest equity-market performers. The importance of this is difficult to overstate. Self-learning will have significant implications that we do not want to overlook.

Moreover, some of the strongest generators of cash flow return on invested capital (CFROIC) in 2017 were within technology: technology hardware and equipment as well as semiconductors and equipment. They were also among the fastest growers of cash flow, in both developed and emerging markets.

Clearly, then, growth in the technology space is not the result of hype, as it was in the 1990s. Something more significant and structural is afoot in the technology space, which the market has recognized and rewarded.

Looking more specifically at emerging markets, we see a similar picture. In 2005, returns were broadly dispersed across a number of industries. In 2017, technology dominated the top 10 industry groups. 1

Software and services, media, technology hardware and equipment, and semiconductors and equipment had the highest returns. Consumer services came in fifth. Again, something structural is clearly occurring.

Something more significant and structural is afoot in the technology space, which the market has recognized and rewarded.

Whatever is happening, it is not a new development; it has been occurring for quite some time.

The technology sector has been increasing in the MSCI Emerging Markets Index for six years, as the chart below shows. Two large and dominant companies , Alibaba and Tencent, together account for about 10% of the index, but the change in the technology composition of the index is not exclusively due to these two companies; there are many companies in emerging markets, particularly China, that are at the forefront of the technology revolution.

In the United States, we look to them for innovative solutions across a number of industries. It is an exciting market segment for active investors.

That is not to say emerging markets are a homogeneous group. All of these countries face different macroeconomic issues: elections in Mexico and Brazil, monetary policy in Turkey, bank recapitalization in India, higher oil prices and ongoing banking-sector consolidation in Russia.

As a result, their returns will be driven by country-specific, idiosyncratic factors that will continue to be important.

1Source: MSCI, as of November 25, 2005 for 2005 data, and November 27, 2017 for 2017 data.

The MSCI Emerging Markets Index represents mid- and large-cap equity performance across 24 emerging markets countries. The MSCI World Index represents mid- and large-cap equity performance across 23 developed markets countries.

Past performance is no guarantee of future results.

 

RELATED POSTS

SUBSCRIBE NOW

Gain insights on macro market events, the economy, and investing strategies.
Receive our latest blog posts in your Inbox with headlines like:

SIGN UP

FOLLOW US

twitterfooterlinkedinfooteryoutubefooterfacebookfooter

RSS FEED

Please carefully consider the Funds’ investment objective, risks, charges, and expenses before investing. This and other information is contained in the Funds’ prospectus, which you may obtain by calling +1 800 742 7272. Read it carefully before you invest or send money. Investing includes the risk of loss.

Any statements or opinions expressed are those of the author as of the date of publication, are subject to change without notice as economic and markets conditions dictate, and may not reflect the opinions of other investment teams within William Blair Investment Management, LLC or the Investment Management Division of William Blair & Company, L.L.C.

This content is for informational and educational purposes only and not intended as investment advice or a recommendation to buy or sell any security. Investment advice and recommendations can be provided only after careful consideration of an investor’s objectives, guidelines, and restrictions.

Factual information has been taken from sources we believe to be reliable, but its accuracy, completeness or interpretation cannot be guaranteed. Investments are subject to market risk. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be interpreted as investment advice, as an offer or solicitation, nor as the purchase or sale of any financial instrument. Statements concerning financial market trends are based on current market conditions, which will fluctuate.

William Blair does not provide legal or tax advice. Please consult your tax and/or legal counsel for specific tax questions and concerns.

Distributed by William Blair & Company, L.L.C., member FINRA/SIPC.

Copyright © 2018 William Blair & Company, L.L.C. "William Blair” is a registered trademark of William Blair & Company, L.L.C. No part of this material may be reproduced in any form, or referred to in any other publication, without express written consent.

Statement of Financial Condition | NMS Rule 605 & 606 | Business Continuity Plan | UK Stewardship Code
Cookie Policy | Social Media Disclaimer | Privacy & Security | FINRA’s BrokerCheck

FOLLOW US

twitterfooterlinkedinfooteryoutubefooterfacebookfooter

RSS FEED

Please carefully consider the Funds’ investment objective, risks, charges, and expenses before investing. This and other information is contained in the Funds’ prospectus, which you may obtain by calling +1 800 742 7272. Read it carefully before you invest or send money. Investing includes the risk of loss.

Any statements or opinions expressed are those of the author as of the date of publication, are subject to change without notice as economic and markets conditions dictate, and may not reflect the opinions of other investment teams within William Blair Investment Management, LLC or the Investment Management Division of William Blair & Company, L.L.C.

This content is for informational and educational purposes only and not intended as investment advice or a recommendation to buy or sell any security. Investment advice and recommendations can be provided only after careful consideration of an investor’s objectives, guidelines, and restrictions.

Factual information has been taken from sources we believe to be reliable, but its accuracy, completeness or interpretation cannot be guaranteed. Investments are subject to market risk. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be interpreted as investment advice, as an offer or solicitation, nor as the purchase or sale of any financial instrument. Statements concerning financial market trends are based on current market conditions, which will fluctuate.

William Blair does not provide legal or tax advice. Please consult your tax and/or legal counsel for specific tax questions and concerns.

Distributed by William Blair & Company, L.L.C., member FINRA/SIPC.

Copyright © 2018 William Blair & Company, L.L.C. "William Blair” is a registered trademark of William Blair & Company, L.L.C. No part of this material may be reproduced in any form, or referred to in any other publication, without express written consent.

Statement of Financial Condition | NMS Rule 605 & 606 | Business Continuity Plan | UK Stewardship Code
Cookie Policy | Social Media Disclaimer | Privacy & Security | FINRA’s BrokerCheck

Subscribe Now

Gain insights on macro market events, the economy, and investing strategies. Receive our latest blog posts in your Inbox with headlines like:

SIGN UP

Send this to friend