Some of the largest companies in the world are disruptors that introduced new business models and changed established industries to create entirely new ones. Prominent examples are Amazon (
Disruption is a subcategory of thematic investing, and there are more ways than ever to invest in these types of innovative companies and themes—if it aligns with your strategy and objectives. Thematic investing can enable you to invest in long-term trends or themes that you believe in, and thematic funds can help you find opportunities that may cut across countries, sectors, and market capitalization.
What are disruptors?
Disruptors are companies that have the potential to change or entirely displace existing companies and industries. These companies can have innovative technologies or operations that are more efficient or make the old way of doing business obsolete—including those that are building out capabilities for the metaverse, blockchain technology, and autonomous driving, to name a few. Disruptive companies have already changed a range of traditional industries, bringing innovative approaches, often enabled by technology and internet platforms, to deliver products and services to customers.
Disruptive investments dissected
While disruptors can be found across many areas of the economy, Fidelity has identified 5 key areas of disruption: automation, communications, finance, medicine, and technology. Indeed, automation may be one of the most powerful trends in the world today. For example, there's massive innovation happening on the factory floor to improve efficiency and increase safety through the use of industrial robotics and advanced sensory equipment. Of course, this may also lead to displacement of some workers.
Disruptive technologies are transforming consumer experiences in a variety of ways, including artificial intelligence, digital, and mobile platforms. Consider ChatGPT and other AI developments that could fundamentally change a wide range of consumer products and services. Also consider the prevalence of disruptive companies helping to develop and deliver more efficient financial solutions. Think about the growth of mobile payments, where we're seeing rapid growth in payments made over mobile devices, offering faster and more secure transactions, yet the penetration rate is still low.
Mobile payments have been growing, but the penetration rate remains low
Disruption is happening across the scope of medical therapies and services as well. There have been breakthroughs in life sciences tools and equipment that are fundamentally changing our understanding of human biology. Companies can now use new methods to create drugs for both very rare diseases as well as other large untapped markets. These advancements may help foster the creation of new biotech companies, some of which could invent the drugs of the future in areas like immuno-oncology, cell therapy, gene therapy, targeted therapies, and more.
Fidelity offers 6 disruptive-themed ETFs. Click on the symbols to see the top-10 holdings for each fund, as of August 30, 2023:
- Fidelity Disruptive Automation ETF (
). Invests in companies leading the way in automation, from industrial robotics to artificial intelligence and autonomous driving
- Fidelity Disruptive Communications ETF (
). Invests in companies changing the way we connect and communicate, from social media to 5G-related digital infrastructure and the internet of things
- Fidelity Disruptive Finance ETF (
). Invests in companies helping to deliver more efficient and customized financial solutions, such as digital payments and internet banks
- Fidelity Disruptive Medicine ETF (
). Invests in companies that are transforming medical diagnostics, therapies, and services, from gene therapy to robotic surgery and digital health platforms
- Fidelity Disruptive Technology ETF (
). Invests in new technologies such as companies delivering cloud computing, harnessing big data, and transforming consumer experiences through internet and mobile platforms
- Fidelity Disruptors Fund ETF (
). Brings together 5 disruptive themes—automation, communications, finance, medicine, technology—in a single fund
Most or all of the investing risks associated with other categories of stocks exist for disruption as well. You should do your due diligence on any individual stock, fund, or other investment to fully understand its characteristics and risks.
Disruptive investments may also carry some unique characteristics to evaluate. For example, in some cases disruptors may exhibit higher-than-average levels of volatility, as investors may have differing opinions on the near-term prospects for these industry-changing companies. This can create opportunities for investors with a long-term focus; however, it also reinforces the importance of diversification. Having a plan and building a diversified portfolio can help mitigate company-specific risks and overall portfolio volatility. If you are interested in these types of investments, you may want to consider a disruptive fund that balances precision to a given theme with exposure across a range of companies and sub-themes.
A common myth about disruption funds is that they are too narrow or too focused for an investor's portfolio. In fact, a thematic fund can hold dozens of stocks, with stocks from different regions, sectors, and market caps. These funds can typically serve as a satellite holding to gain exposure to a theme you believe in alongside a broader diversified portfolio.
Is disruption a theme for you?
The growth in disruptive investments has been substantial with increased investor interest and new fund offerings. Disruptive companies may shape what the market looks like for years to come. Disruption funds may focus on long-term trends that are still developing, and depending on your investing objectives and risk constraints, these investment opportunities may be worth considering.