11 September 2017
Over the past week Australian shares were down 0.6% while smaller stocks rose 1.0%. Shares in developed countries were down 0.1% with the US market down 0.6%. Shares in emerging markets were unchanged. The Australian dollar moved up 1.1% to 80.60 US cents. The 10 year bond yield in Australia declined to 2.58% mirroring the change in the US 10 year bond yield which slid to 2.05%. The oil price rose by 0.4% to 47.48 US dollars per barrel.
The Internet of Things (IoT) is the inter-networking of any device or property which is embedded with electronics, software, sensors, actuators, and network connectivity which enable these objects to gather and exchange data. The IoT creates opportunities for more direct integration of the physical world into computer based systems. There’s great potential for the IoT to improve efficiency, accuracy and ultimately better economic performance. When it comes to investment planning and implementation it’s important we take into account all contributing factors like IoT to ensure we deliver a great retirement outcome for our members.
The IoT has great potential but also brings large risk. This week we explore the potential and in next week's update we explore the risk.
To understand the opportunity IoT has to offer we consider the agriculture sector as an example. There’s a large requirement globally to produce agricultural goods with greater efficiency. In the cropping sector there are on land sensors which can capture data on soil qualities. Tractors can be driven autonomously using GPS with multiple functionality and satellites provide high frequency weather information. Financial market information includes knowledge of current and expected pricing, transport and port charges. With access to all this information, a computer could optimise farm decision making. This relates to many decisions such as soil treatment, crop plantation, pesticides, harvesting decisions, financial hedging activities and ordering of farm goods and services (such as storage, freight and shipping).
How do we try and capture the benefits of the IoT at Mine Wealth + Wellbeing? Firstly through the fund managers that we select to implement our portfolios for us. Across the universe of companies there will be winners and losers due to IoT and we select managers we expect to be able to identify the winners. Secondly we consider how IoT will impact our economic and market forecasts, as these forecasts impact the way we construct our overall portfolios.
As you can see from the above example, the potential for greater efficiency feels large. This is the exciting side of IoT. Similar examples exist in nearly every industry. Beyond efficiency, the IoT also has application in targeted retailing, based on information gathered about individuals from many different sources such as your online and phone-based activities and your physical in-store activities. This is where IoT can be a positive (smart companies may generate greater profit growth) and also a negative (invasion of privacy).
David Bell | Chief Investment Officer