Deep waves: Digital ecosystem

CONTRIBUTORS

Kim Catechis

Investment Strategist,
Franklin Templeton Institute

Lukasz Kalwak, CFA

Market Strategist
Franklin Templeton Institute

Lukasz Labedzki, CFA

Senior Analyst, Franklin Templeton Institute

Karolina Kosinska, CIPM

Analyst
Franklin Templeton Institute

Foreword

In our , we identified several powerful, connected, and long-duration factors that will have a significant impact on investment returns over the next decades. One of these is the Technology Wave, a significant component of which is the digital ecosystem.

The digital ecosystem is a dynamic collection of inter-related and mostly synergistic assets that are in perpetual motion. They rise and fall, grow and evolve, spawning new varieties and creating new pathways, via digital innovation. Think of a coral reef, the rainforest of the sea. The digital ‘reef’ is composed of various layers, each contributing to the whole, but also fostering the innovation of specialist areas. These areas benefit as the digital innovation triggered by the ecosystem is leveraged to solve existing business problems.

The development of the digital ecosystem inevitably triggers digital innovation which has the potential to revolutionize areas like fintech and supply chain design.

This paper is the first in a series of four papers designed to offer a long term, 360-degree overview of the digital ecosystem, with views on the impacts and risks for investors.

WHAT ARE THE RISKS?

All investments involve risks, including possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested. Bond prices generally move in the opposite direction of interest rates. Thus, as the prices of bonds in an investment portfolio adjust to a rise in interest rates, the value of the portfolio may decline. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Investments in fast-growing industries like the technology sector (which historically has been volatile) could result in increased price fluctuation, especially over the short term, due to the rapid pace of product change and development and changes in government regulation of companies emphasizing scientific or technological advancement or regulatory approval for new drugs and medical instruments. Actively managed strategies could experience losses if the investment manager’s judgment about markets, interest rates or the attractiveness, relative values, liquidity or potential appreciation of particular investments made for a portfolio, proves to be incorrect. There can be no guarantee that an investment manager’s investment techniques or decisions will produce the desired results. Diversification does not guarantee profit or protect against the risk of loss.

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