Keeping Up with Innovation

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Keeping Up with Innovation

Keeping Up with Innovation by Dan Roarty, AllianceBernstein

The pace of innovation is accelerating and equity investors are increasingly at risk of getting left behind. We think that moving away from the benchmark can help portfolios keep up with rapid change across many industries.

As they gain support, insurgent technologies often topple long-dominant regimes. The losers fall further and faster than expected, and the winners come out on top in surprising ways. Mainframes displaced adding machines in the 1950s, only to be uprooted by personal computers (PCs) in the 1980s. Today, PCs are being displaced by services that leverage the wireless Internet and cloud computing, working on a wide range of devices from tablets to TVs (and soon eyeglasses and watches).

Benchmarks tend to miss these revolutions. Since they’re backward looking, indices reflect yesterday’s successes, not tomorrow’s. So benchmark-sensitive or index-tracking approaches will be overly bound to legacy technologies. In contrast, active managers can look forward and capture innovation well before it’s reflected in the benchmark.

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