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Dress Up Your Portfolio With Wearable Tech

16 September 2014 in Trading Ideas

Through the improvement in technology over the past decade and the consumer demand to be digitally connected, you can now wear your computer on your wrist. Our new Wearable Tech motif allows you to invest in the innovation that powers these devices and the component providers behind them.

Today, one in six consumers in the US are using wearables.1 These come in a varied number of form factors, ranging from fabrics that measure the skin temperature and activity trackers like Fitbit, all the way to Apple’s recently announced smartwatch . Wearables are here to stay and are quickly becoming the poster child of the technology revolution which brought us smartphones and tablet devices. In fact, research suggests that the global wearable market will evolve from about $3 billion in 2013 to more than $20 billion in 2017, growing a considerable 60% on a year-on-year basis.2

 

Like smartphones and tablets, which made companies like Apple, ARM Holdings into household names and propelled their stock prices and valuation over incumbent rivals like Nokia, BlackBerry, the wearables era could do the same. The difference this time is that the stakes are higher as companies battle for a share of an individual’s real estate i.e. wrist, face or other body parts. This also brings with it, a new opportunity for investors looking for ways to deploy their capital and gain from the next big idea.

Our Wearable Tech motif helps investors gain exposure on the rising adoption of wearable devices by identifying and investing in companies involved in all aspects of wearable technology. The headlines on wearables inevitably focus on the device companies that design and sell wearables such as Apple’s Watch, Google Glass and Fitbit etc. However, there is lot more that goes on behind the scenes and inside these tiny devices to bring the functionality and achieve the ‘wow’ factor.

Our analysis of multiple wearable devices unveiled a range of semiconductor and hardware components that are at the heart of these devices. For example, a significant amount of functionality of Google Glass is built on low power microprocessors, Bluetooth and Wi-Fi connectivity, bone-conducting transducers and high-resolution display. The same is the case with smartwatches and activity trackers which utilize sensors and gyroscopes to log your steps and movements on a daily basis. In building the motif, not only did we include the companies that build the devices but also those that design and manufacture single-chip ICs (also known as System on a Chip), sensors, connectivity components and display solutions. All these companies believe they are at the front lines in the growing ecosystem of wearable devices.

Our motifs are meant to provide investors with true exposure to a given idea. In the case of the Wearable Tech motif, this was definitely a challenge, given the nascent theme that is likely to develop over the next few years. As such, a company’s exposure to the theme cannot be derived from realized revenues and was a more involved process. In our case, we studied research and market analysis reports from industry analysts to estimate the size of the addressable wearable market to both determine the relative weights of the Motif’s segments and whether the potential opportunity in Wearables will have a meaningful impact on each firm’s business. For example analysts expect Google to sell approximately 2.4 million units of Google Glass in 2015.3 At a price of $1,500, this translated into a revenue opportunity of more than $3.5 billion for Google. For a company that does almost $60 billion in revenue, that can definitely have an impact on the bottom line and the stock price.

Some of the names in our Wearable Tech motif are consumer device companies like Apple, Go-Pro and Garmin along with Health Monitor companies like Tandem Diabetes and Insulet Corp., which develop miniature insulin injectors and wearable patches for glucose monitoring.

In terms of the component manufacturers, we include system on a chip (SoC) companies like ARM Holdings, STMicroelectronics and Silicon Labs along with sensor manufacturers like Invensense and Synaptics. On the connectivity side, we have Qualcomm and Broadcom, both of which provide Bluetooth and wireless solutions. Finally, companies like LG Display and Corning are part of the motif as they provide the scratch resistant, flexible and micro display solutions that are key to the reducing form factor and longevity of wearable devices.

While wearable technology is still in its early days and the jury is still out on the ultimate winners. Investors need to appreciate the unique risks involved with making an investment in a leading edge industry. If this is the type of investment your portfolio is lacking, our motif can provide a unique way to obtain broad exposure to a young and growing sector.

1Nielsen: 70% of US consumers have heard of wearables, but might not bite because of price, March 2014 (http://www.fiercewireless.com/story/nielsen-70-us-consumers-have-heard-wearables-might-not-bite-because-price/2014-03-21)

2IDC Report on Wearables (http://www.idc.com/getdoc.jsp?containerId=IDC_P29207)

3Business Insider: Google Glass Will Become A Mainstream Product And Sell Millions By 2016 (http://www.businessinsider.com/google-glass-sales-projections-2013-11#ixzz3D8kSc7uK)

  1. mchavez
    7 Feb at 4:20 am

    Hello world

    Reply
  2. Hugh Moczulski
    24 Mar at 11:17 am

    very nice post, i certainly love this website, keep on it

    Reply

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