No Status Quo: The Difference Disruption Makes | American Funds

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Investment Insights

May 2015

No Status Quo: The Difference Disruption Makes

“Disruptive technology is having a huge impact on the world and it is only getting bigger.”

— Mark Denning

Mark E. Denning Portfolio Manager Los Angeles office 34 years of experience (as of 12/31/16)

Out with the old, in with the new. People of nearly every era have probably surveyed the world around them and marveled at how quickly things can change. But these days, change seems to be setting a new speed record.

Seemingly overnight, products that were once part of everyday life become relics of a time gone by. Indeed, entire industries are being disrupted by innovation or new business models.

For both companies and investors, rapid change can be unsettling, but it can also present opportunity and potential reward, says portfolio manager Mark Denning.

“Disruptive technology is having a huge impact on the world and it is only getting bigger,” says Mark. “Name an industry and it is being disrupted — just look at retail with the impact of e-commerce and mobile payments systems. As investors, we have to make sure we are on top of all the change that is taking place, which is why having the proper resources in place to cover these industries is crucial.”

Mark and other investment professionals point out that, despite the excitement that innovation and change can inspire, investments are made in only the companies in which portfolio managers and investment analysts have the strongest conviction.

“It’s important that we approach them with great diligence and make sure they’re not just companies we like, but that we also know how fast they need to grow sales and improve profits to be fruitful investments,” portfolio manager Carl Kawaja says.

Change can be most apparent in the technology sector, where the status quo almost seems to be a thing of the past. But it’s not the only area where there’s upheaval.

“We are in the middle of a massive health care renaissance,” says investment analyst Rich Wolf. “You’re hearing almost every day about new biotech drugs. And we are in the very early stages of the biotech era.

“There are going to be many secondary effects, not only just for drugs and growth in the biotech industry, but also for the resources and equipment that are required to do that kind of research. There are many companies that supply that industry,” Rich says.

Singapore-based portfolio manager Sung Lee says some changes may be incremental, but it’s important to identify winners and invest early.

“Our advantage is that we can take a long-term view of these companies and see these changes through over many years. That perspective is what gives us the edge in terms of identifying them,” Sung says.

“Certain companies recognize these changes as well, but are too protective of their current business model; once momentum builds, they get left behind. We want to be invested in those companies that think strategically about the long-term shifts in an industry.”

Key Takeaways

We live in a transformational time

  • Emerging technologies and innovation are creating new products and business models that are disrupting the old ways.
  • From cloud computing to a new era of breakthrough drugs, we are on the cusp of a dramatically different world.
  • Companies that are poised to take advantage of these changes have the potential to reap new profits, and provide investors with opportunities that few could have imagined a decade ago.

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Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and not to be comprehensive or to provide advice.