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Learn from the past, invest in the future

Learn from the past, invest in the future

26-10-2015 | Insight

Rolinco, Robeco’s flagship growth equity fund, is celebrating its 50th anniversary this year. Time to look ahead to the next 50 years. What will the world look like in half a century’s time and how can investors benefit from this now?

  • Henk Grootveld
    Henk
    Grootveld
    Fund Manager Rolinco & Head of Trends Investing
  • Marco van Lent
    Marco
    van Lent
    Senior Portfolio Manager Equities

Speed read

  • Benefit now from trends that will shape the future
  • It’s easier to identify the losers than to pinpoint the winners
  • Invest in suppliers of tools all companies developing new technologies need

‘We are at a crossroads in history,’ says Henk Grootveld, fund manager of Rolinco together with Marco van Lent. ‘Never in history have there been so many old people, has the climate been in such imminent danger and have digitization, innovation and communication expanded so explosively.’ It would seem almost impossible to predict what the world will look like in 10, let alone 50 years. Still, this is what keeps Grootveld and Van Lent busy on a daily basis. 

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Self-driving cars on sparkling streets

One of the areas that will look nothing like they do today is infrastructure. ‘In 50 years’ time, cars will be driving themselves, fully electrically of course, and there will be no streetlamps as solar-charged roads will emit light themselves,’ Grootveld philosophizes. ‘Currently a whopping 30% of Los Angeles’s square footage is in some way or another taken up by cars, in the shape of highways, parking spaces, etc.,’ Van Lent adds. ‘This will change dramatically. When we will switch to robot cars, car ownership will plunge, as it will no be longer necessary to have a car sitting in your driveway all the time. Instead, you will simply use an app to order a car when you need it.’ 

Robots: threat or blessing?

Another trend that will shape the future is, of course, robotics. Many tasks currently performed by humans, will be taken over by robots. ‘Lawyers will no longer have to ransack stacks of law books to prepare a case, as IBM’s Watson can do it for them in a matter of seconds. Their work will become easier and they will be able to do it in significantly less time,’ Grootveld explains.

And this is not the only field in which robotics can be of use. ‘Pieter Jonker, Professor of Vision-based Robotics at Delft University of Technology, is involved in the development of a care robot that will allow elderly people to stay in their own homes for a longer period of time,’ Van Lent remarks. This way, robots can help solve social issues as well.

Another area in which digitization in general can have a major impact, is healthcare. ‘Digitization of DNA, of which 80% is done by computers, has also led to enormous progress in healthcare. Hepatitis C is now curable and we are on the verge of curing cancer or at least turn it into a chronic disease. As a result, medicine is becoming much more personalized and more effort is put into prevention. A nice example is the Apple watch, which can give a signal if it detects something wrong in your body,’ says Grootveld.

Aren’t Grootveld and Van Lent afraid that robots will take over our world? ‘Not so much,’ Grootveld responds. ‘I think in 50 years’ time we will still be superior to robots. To a robot, combining activities is still very hard. When it wants to raise its hand and take a left turn at the same time, for example, it falls over.’

The art of using leisure

As robots will be able to do a lot of things a lot faster than we do, we should have much more free time on our hands. This too will create a whole new industry. ‘Think of virtual reality games which will make Captain Picard’s Holodeck pale by comparison,’ says Grootveld. ‘Or virtual art. Digital media artist Sander Veenhof, for example, specializes in virtual (augmented) reality art. He foresees that one day we will be able to take a walk through Amsterdam to the building where George Breitner lived and see him working on one of his paintings as if we went back in time.’

‘Benefit now from the trends that will shape the future’

How to turn prediction into profit?

It’s interesting to have an ultra-long view on technological and other developments, but how do Grootveld and Van Lent capitalize on them in a portfolio that is expected to deliver returns on an – if not monthly then at least – annual basis? ‘First of all, it’s easier to pinpoint the losers than it is to predict the winners,’ Van Lent explains. ‘With all the different technologies, things can move in so many directions. Warren Buffet once quipped that the best way to profit from the birth of the car 100 years ago would have been to short the horse. A more contemporary example is Tesla, which is going to produce lithium ion batteries to store energy. This seemed to be a very promising technology when they started building the factory, but in the meantime competitor Ambri has invented a liquid metal battery technology that may render Tesla’s technology obsolete.’

Another example is 3D printing. ‘We have had a 3D printing company in the portfolio for three years, but recently decided to sell. We are still convinced that 3D printing will be successful, but the pace at which companies and consumers have embraced it, has been much slower than we expected. With our three- to five-year investment horizon, we cannot afford to wait for this.’

Grootveld and Van Lent filter out 90% of the companies they expect to lose, such as physical retail shops, coal producers and utilities, and focus on the remaining 10%. And this is the tricky bit. ‘We are convinced, for example, that solar energy is the future,’ says Grootveld.’ However, we cannot time exactly when this will take off. In addition, Moore’s law also applies to solar energy, which means that solar panels’ capacity will increase and the price will decline. Only a handful of winners will be able to survive.’

Invest in the suppliers of stuff all competitors need

Grootveld and Van Lent solve this conundrum by investing in the companies that supply the parts, tools or services that all companies developing these new technologies need. This way they are able to benefit from the trend, without having to predict the individual winners.

‘Take solar energy,’ says Grootveld. ‘On a sunny day, German solar panels are producing so much energy that in order to prevent the system from melting down, companies have to pay the Netherlands to store the energy. Storage is a challenge. Investing in the battery makers that contribute to solving this storage problem will be key in the future. We also have a stake in Chinese GCL-Poly, the cheapest producer of polysilicon for the solar photovoltaic industry.’

‘We mentioned the efforts to cure cancer,’ Van Lent adds. ‘Here too, it’s difficult to predict exactly which pharmaceutical company will come out as winner. What we do, is invest in a producer of DNA machines, such as Illumina. All pharmaceutical companies need them. The same goes for Thermo Fischer, which produces diagnostic tools. And the various personalized medicines will need to be tested. So we invest in a clinical trial supplier like Quintiles.’

Similarly, Grootveld and Van Lent do not try to predict which auto manufacturer will come out on top in the production of self-driving cars, but instead invest in Sensata, a company that supplies the sensors the self-driving car uses.

‘If there’s one thing the past has taught us, it’s that everything always turns out differently than what we all thought’

Doom scenarios

Of course, visions of the future tend to inspire fear as well. Some people envisage a world in which people no longer have jobs, take pills for food, have all their purchases delivered at home and don’t leave their house anymore. Grootveld is not worried. ‘If there’s one thing the past has taught us, it’s that everything always turns out differently than what we all thought,’ he says. ‘In every economic revolution, there were always people who lost jobs, but in the end they found another type of job. When horses were being replaced by cars, blacksmiths lost their jobs, but found new employment in the Ford factories. It’s a matter of flexibility and re-training.’

One thing is for sure: changes will be far more advanced than we can fathom today. ‘One year after Rolinco started, a revolutionary new television series took off, with people communicating with each other by tapping on a button on their shirt,’ says Grootveld. ‘Now, almost fifty years after the first episode of Star Trek, this isn’t science fiction anymore.’

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