Rapid and compounding developments in artificial intelligence and automation, extreme interconnectedness, and vast computing power are reshaping global economies, upending traditional industries and spawning new ones. This breathtaking pace of innovation, which is referred to as the Fourth Industrial Revolution is creating new investment opportunities and “New Economies.”
Kensho Technologies is a data analytics and machine intelligence company that has leveraged their natural language processing (NLP) and data science capabilities to create new indices designed to capture the technological shifts of our modern economy. We partnered with Kensho to develop a suite of SPDR® S&P Kensho ETFs that provide exposure to US-listed firms whose products and services drive innovation in the industries and sectors at the heart of the Fourth Industrial Revolution, providing potential solutions for clients to 'future-ize' portfolios as we stand on the precipice of immense change.
To showcase how Kensho’s innovative and dynamic approach to building its indices identifies companies that are fueling advancements within the New Economies, here is a closer look at three companies selected by Kensho’s forward looking methodology, with details on why they are included in each fund.
#1: The SPDR S&P Kensho Smart Mobility ETF (HAIL) and Visteon Corp (VC)
Technological innovation is ushering in a new era of transportation that is expected to move people and goods faster, cheaper and more efficiently using autonomous vehicles, mobility sharing and drones. One of HAIL’s core holdings, which we’ve previously discussed on SPDR Blog, is Avis Budget Group. Avis may be a familiar name for traditional car rental, but it is included in the Smart Mobility fund because of its exposure to ride sharing and autonomous vehicles, which are expected to drive growth in the automotive industry. Avis owns ride-sharing service Zipcar, and has also agreed to provide maintenance service for Waymo’s (owned by Alphabet, the parent of Google) self-driving car fleet.
But HAIL goes beyond the well-known companies like Avis to capture the entire range of firms whose products and services are spurring smart transportation. Visteon’s inclusion in the Smart Transportation Index highlights Kensho’s ability to identify companies spurring innovation outside of the pure-play manufacturers that may help shape the autonomous vehicle market.
Visteon supplies automotive systems, modules and components to vehicle manufacturers, producing products such as climate control systems, electronics, interiors and lighting. Earlier this year, Visteon announced its DriveCoreTM platform, which is designed to accelerate the development and commercialization of autonomous driving technology.1 The platform is expected to be launched in 2020, and Visteon has already announced an agreement with Guangzhou Automotive Group, a Chinese state-owned auto manufacturer,2 to help them develop autonomous technology for the vehicles they are planning to sell in the US for the first time in 2019.3 Car sales in China account for 25% of global units sold, and the emerging economy is still seen as a high-growth market for vehicles.4 Additionally, autonomous vehicles are highlighted as a key sector in the Chinese government’s “Made in China 2025” initiative announced in January 2018. Having already aided one of China’s largest auto manufacturers through this agreement, Visteon is uniquely positioned to benefit from this initiative.
#2: The SPDR S&P Kensho Intelligent Structures ETF (SIMS) and Silicon Laboratories Inc (SLAB)
Infrastructure is evolving far beyond the traditional roads, bridges, and tunnels of yesterday. From a global perspective, McKinsey & Company estimates the world needs to invest $3.3 trillion annually in infrastructure to meet global annual GDP growth forecasts of 3.3% by 2030, an increase from the current $2.5 trillion.5
The S&P Kensho Intelligent Infrastructure Index attempts to identify companies that may benefit from a potential increase in infrastructure spending in an age of evolving technological advancements that touch every facet of our lives. The index goes beyond well-known traditional Industrial firms by including companies involved in intelligent and connected home technologies, smart power grid technology, road sensors, traffic management infrastructure and smart water meters from other GICS sectors.
This broad reach is why Silicon Laboratories Inc. (SLAB) is a core constituent in the Kensho Intelligent Infrastructure Index. SLAB provides silicon, software and solutions for the Internet of Things (IoT), internet infrastructure, industrial automation, consumer and automotive markets. Management refers to connectivity and the IoT as core components of the company, and an “opportunity of our lifetime” that could represent $11.1 trillion in economic value per year by 2025.6 Needham Research, a leading investment bank focused on growth companies, believes SLAB has the most comprehensive IoT portfolio and expects its wireless business to become a larger part of the IoT.7
Part of SLAB’s diverse product offering includes home automation solutions such as connected lighting, designed to be more energy efficient, home security that involves contact sensors, connected door locks to provide peace of mind, and smart thermostats to monitor energy consumption and control an environment.8 Needham Research projects SLAB’s intelligent infrastructure business to grow from $1.46 billion in 2016 to $2.26 billion in 2020, which would reflect a 14% compound annual growth rate (CAGR).9
#3: The SPDR S&P Kensho Future Security ETF (FITE) and Qualys Inc (QLYS)
The cost to the global economy from cybercrimes is projected to reach $6 trillion by 2021, making the need for advanced, dynamic security monitoring paramount for companies and government agencies.10 Of the $15 billion allocated to cybersecurity in the White House’s 2019 fiscal year budget, $8.5 billion is for the Department of Defense.11
As the federal government continues to prioritize and expand its data and network protection services, innovative companies like Qualys Inc. (QLYS) may be well positioned to expand their revenue through the large and growing funds allocated to this space, which is why it’s part of the S&P Kensho Future Security Index and FITE.
Qualys provides information technology security risk and compliance management solutions, offering products for vulnerability management, web application scanning and malware detection. Started in 1999, the company has strategic partnerships with dozens of large corporations and is a founding member of the Cloud Security Alliance (CSA). The company’s QualysGuard Cloud Platform is a cloud security service offering continuous monitoring, proactively notifying clients when new vulnerabilities appear.
Needham Research cites federal business as a “significant growth opportunity” for Qualys. The company’s Cloud Platform became FedRAMP-certified in Q4 2017, enabling it to support federal networks and critical infrastructure according to the White House Executive Order requirements.12 Since the certification’s launch in mid-2012, only 101 products have been FedRAMP authorized,13 putting the Qualys Cloud Platform in selective company.
Putting the future in your portfolio
Technology is blurring the lines between the physical, digital and biological spheres, transforming existing industries and creating entirely new ones. Investors seeking to future-ize portfolios ahead of the Fourth Industrial Revolution can read more about our suite of SPDR S&P Kensho ETFs:
- SPDR S&P Kensho Smart Mobility ETF (HAIL): Driving into the Future: Investing in Smart Transportation
- SPDR S&P Kensho Intelligent Structures ETF (SIMS): Intelligent Infrastructure: Building a Portfolio for the Future
- SPDR S&P Kensho Future Security ETF (FITE): May the Space Force Be With You: Opportunities in the Future of Security
1Visteon Corporate Website, “Visteon Introduces DriveCore™ Autonomous Driving Platform to Accelerate Adoption of Self-Driving Technology,” as of 1/9/2018
2AutomotiveNews, “Visteon to help China’s GAC design self-driving vehicles,” as of 1/22/2018
3Forbes, “What’s In Store For China’s Auto Industry This Year? 2017 Provided Some Clues,” as of 2/7/2018
4China Daily, “Car sales hit record in 2017; 25% sold in China,” as of 1/4/2018
5 McKinsey & Company, as of 10/31/2017.
6Silicon Laboratories Corporate Overview, as of March 2018
7Needham Research, “Silicon Laboratories Inc. [SLAB],” as of 2/1/2018
8Silicon Laboratories Corporate Website, as of March 2018
9Needham Research, “Silicon Laboratories Inc. [SLAB],” as of 10/25/2017
10Herjavec Group, “2017 CybercrimeReport,” as of 10/18/2017
11WhiteHouse.gov, “Budget of the US Government FY 2019”
12Needham Research,“Qualys, Inc.,” as of 4/23/2018
13FedRAMP.gov, as of 5/2/2018
KENSHO© is a registered service mark of Kensho Technologies Inc. (“Kensho”), and all Kensho financial indices in the Kensho New Economies© family and such indices’ corresponding service marks have been licensed by the Licensee in connection with the SPDR Kensho Intelligent Structures ETF, SPDR Kensho Smart Mobility ETF and SPDR Kensho Future Security ETF (collectively, the “SPDR ETFs”). The SPDR ETFs are not marketed, sold, or sponsored by Kensho, Kensho’s affiliates, or Kensho’s third party licensors.
Kensho is not an investment adviser or broker-dealer and Kensho makes no representation regarding the advisability of investing in any investment fund, other investment vehicle, security or other financial product regardless of whether or not it is based on, derived from, or included as a constituent of any Kensho New Economies© family index. Kensho bears no responsibility or liability for any business decision, input, recommendation, or action taken based on Kensho indices or any products based on, derived from, or included as a constituent of any such index. All referenced names and trademarks are the property of their respective owners.
Prior to 06/25/2019, the SPDR S&P Kensho Future Security ETF (FITE) was known as the SPDR Kensho Future Security ETF (XKFS), the SPDR S&P Kensho Smart Mobility ETF (HAIL) was known as the SPDR Kensho Smart Mobility ETF (XKST), and the SPDR S&P Kensho Intelligent Structures ETF (SIMS) was known as the SPDR Kensho Intelligent Structures ETF (XKII).
Global Industry Classification Standard (GICS)
A financial-industry guide for classifying industries that is used by investors around the world. The GICS structure consists of 11 sectors, 24 industry groups, 68 industries and 157 sub-industries, and Standard & Poor’s (S&P) has categorized all major public companies into the GICS framework.