How Do Market Sectors Overlap?
Last we spoke twelve-year-old me was having the time of his life with Dad in a Mississippi t-shirt factory. A few years later, twenty-something me was in another factory, only this time under slightly different circumstances.
Post-Soviet era Ukraine was, as you can imagine, an interesting place. But that’s what attracted me to the Peace Corps initially—I wanted a life experience beyond my ordinary. For generations of Ukrainians, they had known nothing but a communist regime, a closed society. And that showed in every walk of life, right on down to their often-dry wit—asked about communism, more than a few Ukrainians told me, “We pretended to work; they pretended to pay us.”
I arrived in Kiev in 1995 eager, but unsure of what to expect. My job was to help create business plans for companies adapting to a new market economy. My personal challenge was to find something—anything—in common with a group of people I knew nothing about.
In its own world
The utilitarian look and feel of that Ukrainian factory was unintentionally retro. Among the small household appliances produced at the factory, the teapots looked straight out of the World War II era. The steel table fans made there consisted of a stand, motor, electrical cord, and blade, i.e., they offered no protective covering for wayward fingers (hey, there was no one to sue). Each manager had a picture of Lenin hanging over his desk.
I realized how disconnected Ukraine had been from the world I knew—in fact, the world that most knew. The factory my Dad oversaw in 1981 was light years ahead of the one that I saw in Ukraine in 1995. But in hindsight that was still very much a singular factory in Mississippi. And though politics put Ukraine at an extreme end of the isolation spectrum, it wasn’t as though the rest of the world was completely intertwined either.
Sure, even the farthest corners of the globe weren’t totally foreign to many people, but there was no single tangible thread linking us together. The vast majority of the businesses that comprised the world economy were largely isolated, local entities.
Taking the local global
In 1981, all things t-shirt happened in that one factory in Mississippi. Today, that locally produced t-shirt is probably a well-traveled, global product, weaved together by many different market dynamics and economic forces. And that’s become the norm.
What changed? The Internet. Our physical presence may be local. But as soon as we get online, we can have a global presence instantaneously. Now, with a few clicks, taps, or swipes we can find a way to connect with many of the 4 billion people that are online. And as time goes on, the intensity of our connections seems to increase exponentially.
The Internet has spawned the largest global community we’ve ever known, for better and worse. It’s a story of people coming together via a common tool that has disrupted what we once knew to be true.
New paradigms are coming
Social media increases its influence daily. Lithium-ion batteries look poised to lead a shift toward renewable energy. Robotics and artificial intelligence stand to take on increasingly sophisticated tasks. Greater connectivity is set to allow for more network-enabled devices within the Internet of Things.
Will there be a new common thread binding these changes? Many market observers point to blockchain technology as a game-changer. This digital list of records, or blocks, that forms a chronological information chain goes where the Internet can’t.
It creates a permanent, encrypted record that can be verified and tracked. Blockchain’s versatility and accuracy are its strengths, in that it can make the smallest pieces of data reliable. This makes blockchain’s potential suitability vast across sectors, whether recording events, developing medical records, tracking food shipments, or processing transactions. The latter certainly has the FinTech industry’s attention.
Not everything changes
Investors looking to get ahead of these changes may want to explore Sector Disruptors, a series of thematic ETFs that target companies poised to benefit from transformational technologies. To note, per the recent announcement by S&P and MSCI, next year the Telecom sector will morph into a new Communication Services sector, which will also include firms formerly from Information Technology and Consumer Discretionary.1
But the more things change, though, the more they stay the same. If you were to ask me how my job has changed over the last five, ten, or fifteen years, I would say this: it hasn’t. Investing is still about generating the highest return relative to an appropriate level of risk. We continue to judge performance not just by total return, but also by the type of exposure to volatility across sectors and assets.
Human connections don’t change either. I got along quite well with the Ukrainians—similar senses of humor. Looking back on the many lessons learned during my time there, the biggest one is probably this: even when it seems like we’re disconnected, like we have nothing in common, there are threads that tie us all. All you have to do is find them.