Business innovation is characterised by the consistent production of unique products or services that are challenging for competitors to replicate. Capital Group cites data from the Boston Consulting Group (BCG) to make a case for investing in innovative companies. 

As per BCG, from 2004 to 2022, innovative companies have consistently outperformed the broader market by achieving sustained growth and creating substantial value for investors. 

“The geography of innovation continues to evolve. Countries like the US and China have established innovation ecosystems that are fuelling innovation catalysts and triggering world-changing innovation,” says the asset manager.  

Capital Group also touches on various technological advancements, such as biopharma innovation driven by RNAi and CRISPR technologies. The potential of artificial intelligence (AI) is highlighted, emphasising that those who adopt it early stand to benefit the most. 

“They include data centres and the producers of graphics processing units, both of which could see a ramp up in investments as the demand for AI technology grows,” says Harold La, Portfolio Manager at Capital Group. 

“The speed of investment and adoption has the potential for faster returns, leaving the laggards to play catch-up,” he adds. 

Separately, Christopher Lee, Investment Analyst at Capital Group, notes that AI’s influence on healthcare is in its early stages. Lee acknowledges the more intricate challenges lie in using AI to transform drug development and make significant scientific discoveries, but these advancements are still in the distant future.

Following this, David Cummins, Investment Analyst at Capital Group, details that the elements fostering a prosperous innovation ecosystem are delineated as the “5 Cs”: connectivity, capital, courage, concentration of expertise, and channels.

“Investing in innovative companies involves deep research, keeping an open mind, and patience to allow the merits of innovation to unfold… Artificial intelligence-driven transformation and the third wave of biopharma innovation are some of our closely watched trends,” contends Capital Group.  

In conclusion, La remarks that a higher rate environment has inflicted financial challenges, yet it has spurred companies to become more focused, leaner, and innovative in generating returns swiftly. “In this tough environment, it becomes clearer which companies are improving faster than the others,” he adds.  

Read the full insight here.