The entire philosophy behind investing is future-oriented, so doesn’t it make sense that we invest in what’s to come? Investing in innovation is a trend on the rise that’s been catching some momentous waves in the form of formalized funds curated for innovation’s sake alone, and not to mention a bit of help from the ravishing retail traders as well.
As any prudent investor would though, let’s survey the landscape properly before making any brash decisions. Here’s a moderate outlook on the innovation sector.
Innovation’s place in public money and the global competition driving it
The Bloomberg Innovation Index gives us a good look into who’s expanding, who’s treading water, and who’s falling behind. The US, unfortunately, has been doing a bit of the latter in recent years, with the gap between us and our primary competitor, China, growing smaller and smaller.
Investing in public research and innovation has fallen a long way from its ambitious spike during the space race. With US R&D spending topping out at over 12% of GDP back in the 1960s, it fell to about 4.5% over the next couple of decades until 2008, when it got hit yet again, then dropping to the current paltry rate of 0.6% of GDP and 2.8% of total federal outlays.
Now though, President Biden has renewed the focus on public investment in research and budding technologies. As part of the proposed infrastructure spending, Congress has allocated several hundred billion dollars (varies depending on what you include) to research and innovation.
The purpose of these earmarked dollars is specifically to get America squarely back on pace to compete with its biggest contemporaries like China and others, with the onus falling on growing, innovative industries like semiconductors, biotech, EVs, batteries, clean energy, and more.
What this means for us as investors
We all know that politics and public policy is a big player in the game of influencing market sentiment, and the government preparing to try and make a comeback in the innovation field is no exception to this rule. As an individual investor, we have to evaluate how this impacts our strategy on a personal level too, so, here are some things worth considering.
- Look internationally: The United States isn’t the only country where innovation takes place, and there are several other nations like Germany, Israel, China, and others that have become breeding grounds for new and innovative businesses in the private sector, regardless of their government’s investment into them. Single country funds or emerging markets funds like $VWO, $IEMG may offer some additional ways to gain some exposure.
- Get sector-specific: If there’s a certain aspect of innovation you have a strong conviction in, consider expanding your portfolio to include those areas. You don’t have to try and eat the whole elephant. Pick specific sectors or industries you think are positioned to gain a lot of capital investment over the next few years or even decades (i.e., EVs, fast charging, AI technologies).
- Scout out some innovation funds: Remember the saying “there’s an app for that?” Well now, similarly, there’s a fund for that. No matter what sector of innovation we’re talking about, thanks to growing exposure and investor interest, innovation-specific funds are becoming available in more and more industries, so take some time to find your favorites. Check out names like $BLOK, $ARKW, or $DTEC.
- If you're feeling frisky, try crowdfunding: For those who desire a more hands-on, personal experience in their investments, or maybe just seek more of a thrill, you can try your luck at crowdfunding innovative businesses through new intermediary technologies like WeFunder, Republic, StartEngine and others.