There are driving changes in the U.S. economy, affecting employment, productivity and profitability dynamics: the automation of knowledge work, advanced robotics and the energy revolution. These trends are just the tip of the iceberg, says Pioneer Investments. "Over the coming decade, radical changes in healthcare, education, communication, transportation and alternative energy – to name just a few – will transform the economy and the investment landscape. We believe that new modes of research and analysis will be necessary in order to interpret the impact of these changes on both the macro and micro levels of the economy".
Selection in the Era of Innovation
In this era of accelerating innovation, Pioneer´s analysts believe that a fundamentally different analytical perspective on long-term factors shaping the economic landscape is required. "This framework, together with the more traditional sector/business financial analysis, will potentially enable us to identify unique return opportunities and uncover hidden risks in each market". Key factors for the firm are:
- New technologies’ impacts on sector trends
- New business emergence
- Rapidly evolving disruptive competitors
- Business model flexibility; the ability to leverage a platform, respond to competitive threats, reshape product and service offerings
- Demonstrable innovation track record (ability to enter new markets/launch new products)
- The ability to attract/retain innovation talent, shed costs, rapidly increase productivity
Accelerating Innovation: Far-reaching, Positive Consequences on the Economy
The U.S. economy is in transition, moving rapidly towards a knowledge-based economy that will rely increasingly less on human labor to manufacture goods and provide many services. "We believe the trends we have discussed will rapidly reshape the economic landscape. With any dramatic change comes uncertainty and some fear. Many pundits have highlighted the possible downside of these changes. While we are sympathetic to these concerns, we believe that accelerating innovation will ultimately create more jobs than it destroys, produce dramatic wealth and have far-reaching positive consequences to areas of the economy that have historically been less productive (education and healthcare are good examples)", explains Michael Temple, director of Credit Research at Pioneer Investments and portfolio manager for Pioneer Dynamic Credit Fund.
Every economic transition generates dislocations. Society ultimately adapts but the transition will be difficult to navigate for those unable to keep up. This has significant ramifications for the investment landscape, opines Temple. "Investors that use traditional frameworks to analyze the market, picking winners and losers based on outdated valuation relationships or assessing macro-economic policy based on irrelevant historical paradigms, run the risk of focusing on the wrong things".