The Singularity Group Identifies Reshoring as Next Macrotrend
As supply chains are being relocated to domestic markets, investors can benefit from the innovations behind the global movement.
We have launched the Singularity Reindustrialization strategy that makes the innovations driving the global deglobalisation trend investable. specializes in quantifying innovation cash flows and returns in publicly traded companies. To identify applied innovation underlying the reshoring megatrend, TSG works closely with its own Singularity Think Tank — a global community of technology and innovation experts. Singularity Reshoring is the first TSG investment vehicle capturing innovation in a global megatrend.
The past few years were marked by a host of global uncertainties. Supply chain shocks, mounting effects from climate change, a global healthcare crisis, compromised energy and food supplies, and geopolitical conflicts have challenged the boundaries of global systems. “In this context, we identify a major opportunity for investing in the applied innovation that underlies the worldwide trend towards deglobalization and reshoring,” notes Evelyne Pflugi, CEO and co-founder of TSG. Reshoring stands for the shift of production and related business activities back to domestic markets. There is now a growing consensus among governments and companies in developed countries that regaining sovereignty over production and value creation is gaining in urgency.
“After demographic change, sustainability, and digitalization, this is the next defining megatrend of the 20th and 21st centuries”, observes Dr. Shiko Ben-Menahem, Director of Research at TSG. But reshoring brings costs and problems too, such that not all companies exposed to the trend stand to benefit. “With our proven methodology of screening the world for revenue streams from applied innovation, we can identify a number of attractive innovations that enable and drive this dynamic. The organizations that own those innovation value chains are best positioned to win.” Pflugi goes a step further, adding, “The arms race of our time is no longer about weapons, but about innovation in critical economic domains. Those who don’t innovate lose.”
Applied innovations drive deglobalization trend in six focus areas
“Since our founding, we have been regularly approached by private banks, asset managers or family offices who asked for our advice on how to invest in hype topics. These range from the metaverse to hydrogen as an alternative energy source. So far, we’ve had to turn them down because we simply couldn’t find any or enough applied innovations as investment opportunities,” said Pflugi, who built her expertise in cash flow investing nearly 15 years ago as a resources and energy analyst at Capital Group in Los Angeles. TSG CIO Pierre Guillier adds, “What sets us apart from many tech-focused strategies: We only look at innovation that actually happens and generates revenue — now, not in the future.” Guillier says many asset managers fail to reflect deglobalization in a product. “However, our strategy is predestined to do so because we closely analyze the enabling technologies that are currently relevant. Our expert- and return-oriented approach separates inflated hypes from real trends.” When it comes to reshoring, the investment boutique sees a variety of technologies and applied innovations that benefit from and enable the trend. They fall into six areas:
- Automation Technologies (e.g., factory automation, robotics, smart sensors) help companies increase the efficiency and productivity of their operations. This will allow companies to relocate production to their home country despite higher labor costs.
- Sustainable Resources & Infrastructure (e.g., energy storage, medium-voltage infrastructure, energy efficiency, and grid management software) will help companies reduce their carbon footprint: By shortening their supply chains and moving production closer to end markets while increasing the use of clean energy.
- Food Security & Sovereignty (e.g., novel foods, AgriTech, WaterTech) have played an increasingly important role since the outbreak of the COVID-19 pandemic and recent droughts — events that have highlighted the importance of countries’ sovereignty over reliable and safe food and water supplies.
- Design- & Engineering Software (e.g., electrical and digital building infrastructure, 3D modeling software) helps companies make their product development and manufacturing processes more efficient by shortening development times and enabling large-scale custom fabrication.
- Biomedical Engineering (e.g., bioanalytical diagnostic devices, genomics) addresses the need for a robust domestic medical supply chain, and many countries are now seeking to reduce their dependence on global supply chains and become more independent.
- Semiconductor Design & Manufacturing (e.g., front-end manufacturing equipment, design applications and software, advanced chip foundries): Semiconductors are elemental components of medical and electronic devices (e.g., smartphones). Increasing demand for cloud computing, artificial intelligence, connected sensors and machines (IoT), and (electric) vehicles also requires more and more specialized semiconductors. Companies are seeking to relocate semiconductor production to reduce dependence on foreign supply chains and increase control over the availability and quality of advanced semiconductors and their value chains (e.g., US CHIPS Act of 2022).
In a first step, the megatrend is accessible to investors via a structured product (UBS Equity Certificate). The investment strategy focuses on the developed countries within the MSCI World Index (excluding Hong Kong) as well as on stocks in the mid-market capitalization range (below USD 50 billion) and includes 50 stocks.
Figure 1: Reshoring gathers momentum as the fourth megatrend of the 20th and 21st centuries
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About The Singularity Group
The Singularity Group (TSG) makes applied innovation investable in listed equities. TSG is the initiator of the Singularity Index™ (Bloomberg ticker: NQ2045), a global, all-sector benchmark and gold standard for applied innovation. The Singularity Strategies include The Singularity Fund (UCITS Lux), Singularity Reindustrialization, LUKB Smart Farming (LUKB AMC), and the Singularity Small&Mid (UBS AMC). The Swiss investment advisory boutique works closely with the Singularity Think Tank, a network of entrepreneurs and academics with deep insights into innovation value chains. Their input forms the foundation of TSG’s proprietary innovation scoring system that quantifies the engagement of companies within a set of curated Singularity Sectors worldwide across all market capitalizations and industries. The Singularity Innovation Score (see below) defines how much value listed companies are generating through applied innovation.
The Singularity Innovation Score (SI-Score): A company’s SI-Score represents the percentage of its revenues associated with innovation. It reflects a company’s ability to create innovation versus commoditized business and cash flows, and its ability to participate in technological evolution. Changes in the SI-Score are just as important as the absolute value. A company’s SI-Score relative to its overall GICS sector can say a lot about the competitive standing and ability to gain and maintain market share. Regional SI-Scores can be used to evaluate the innovation power of markets as well as to gage companies’ standing in different regions.
Innovation Revenues: 4% of a 74 trillion USD global market: In 2022, the total revenues generated by the World’s listed equities amounted to USD 74 Trillion. TSG’s unique expert-led innovation screening and scoring methodology allows us to divide that amount into innovation revenues and non-innovation revenues. In 2022, roughly 4% (USD 3 Trillion) of global revenues qualified as innovation revenues.
For more information visit: www.singularity-group.com
