Brendalee Scott-Novak, Butterfield
At the close of markets on June 22, the Dow Jones Industrial Average was less than 3 percentage points from its all-time high, while the Standard and Poor’s 500 was much closer at less than 2 percentage points. The Fed funds rate, a popular gauge for fixed income markets, remains between 0.25 and 0.50 basis points, essentially truncated below half a percent, where it has stayed for much of the last seven years.
Given the seemingly high valuation gauge for equities, negative deposit rates in most of developed Europe and growing bond issuances returning negative yields (about 30 percent of all global issues), many investors are left wrestling for a safe place to hide.
Admittedly, we face a world riddled with uncertainty. From the Brexit decision and its potential implications, ongoing geopolitical risks, to a slew of impending elections with the potential to change our political landscape, where can investors find opportunities to create longer term value? This tripartite crossfire, unfortunately, has the ability to distort investors’ views on any potential for positive returns in a time-tested investment philosophy.
Financial markets have historically been a dynamic platform for retail investors to acquire, grow and protect wealth. By investing in publicly traded securities, investors are given access to ownership in world-renowned companies. So how do you navigate the maze of data to find well-run, innovative companies that warrant your investment dollars and which have the potential to provide positive returns over the long term?
It is hard to ignore the digital revolution transforming the way we shop, travel, communicate and conduct business. Economic transformation is a direct corollary of this revolution and can present great opportunities for investors with a 10- to 20-year time horizon. Companies that foster innovation, those with the flexibility to adapt fundamental shifts in strategies and create new revenue opportunities, and those that are courageous enough to undertake bold moves, are prime candidates for potential long-term investment dollars. In much the same way, individuals courageous enough to participate in these investment opportunities stand to gain significantly if a winner is chosen. Below are four quick ways to create a short list for further research:
First, start the search by looking for companies that are revolutionizing their industry or creating a new one. Companies such as Facebook and Twitter radically altered the way we communicate and stay in touch with friends and loved ones, essentially creating a new sub-sector within their industry. Other companies such as Tesla dared to push the boundaries of innovation, effectively creating products that connect with people in a very meaningful way. Tesla, like Apple, proves that first mover advantages can easily dissipate if companies are not flexible and dynamic enough to adapt to changing societal norms and stay ahead of the curve.
Second, review companies that are creating newer and more effective ways of achieving everyday tasks. Companies such as the retail behemoth Amazon, with its robust online platform and one-hour grocery delivery service, has made shopping easier than ever, threatening the entire retail spectrum. Starbucks, the ubiquitous coffee shop company, has made purchasing a cup of coffee a simple, non-cash event via the company’s mobile app.
Third, and perhaps the most powerful impact of the digitized revolution, are companies that are creating generational shifts in lifestyle. Companies such as Uber are redefining travel in metropolitan areas with their ride-sharing service, while Airbnb is disrupting the travel industry as its home-sharing concept has grown quite rapidly, especially among millennials. Other innovators, such as Netflix, have effected seismic changes in home entertainment, capturing the changing generational needs with its on-demand movie and video streaming model. For the fashion forward, companies like Lululemon have revolutionized the “athleisure” category, creating a sub-industry of sorts for the sport enthusiast.
Finally, assess companies that are creating sustainable ways of operating and maintaining their competitive advantages. These companies typically possess combinations of strong research and innovation, strong brand popularity, phenomenal reputation and superior product or customer support. Companies such as Kroger, Trader Joe’s, Adobe and Nintendo have ignored the competition to chart their own paths, shifting the course of their respective industries.
While these four factors are by no means exhaustive, there is much to be said when a digitized brand becomes so entwined in our daily vocabulary it becomes “verbified.” When we choose to “Google” our information, “Whatsapp” or “Facetime” our friends and “Tweet” where we are and what we are doing, marketers deem this “verbification” as connectedness and wide acceptance of a brand. Choosing an individual winner will undoubtedly require substantive research and analysis, but the clear winners will be those companies that embrace digital transformation and align their technology platforms with innovative and dynamic business strategies.
The views expressed are the opinions of the writer and while believed reliable may differ from the views of Butterfield Bank (Cayman) Ltd. Past performance is not necessarily a guide to future performance. Statistics and data source: Bloomberg LP., www.forbes.com, www.fastcompany.com, Federal Reserve, CNBC.