- The biorevolution is a related set of technological advances in the biological and life sciences that is beginning to transform the economy through widespread innovation.
- These advances create potential to engineer and produce new biology-sourced products, ingredients, and materials.
- We anticipate wide-ranging impact across several sectors beyond health care and widespread opportunities for investors.
Businesses are beginning to harness innovative products and materials derived from biological processes that have the potential to drive future earnings and create outperformance (alpha) opportunities for investors. We believe the emerging bioeconomy will drive incremental demand for existing products; create new markets, products, and businesses; and help existing businesses solve difficult sustainability challenges, reduce operational risk, and align their products with customer preferences. It is likely we will see far-reaching implications for the economy and a major wave of innovation in coming decades.
We see three key types of companies that can harness growth from the biorevolution in different ways:
- Technology enablers likely to benefit from increased demand for their products, resulting in accelerated growth rates
- Disruptive bio or synbio companies that will potentially create new markets and products
- Early adopters and incumbents that can gain competitive advantages as they leverage innovation
Evidence of the impact is already visible and measurable. Disruptive companies engaged with the new technologies are gaining higher levels of financing, and incumbent companies with a track record of development are launching new partnerships.
Going beyond the health care sectorThe economic impact of the biorevolution goes beyond the health care sector, in our view, with potential to transform multiple industries and drive profit opportunities. While many knowledgeable experts recognize the changes at hand, we think we see a broader range of implications than others may anticipate. We believe, in coming decades, the biorevolution will transform the health care, materials, agriculture, and consumer sectors (staples and discretionary). Innovation in this space will enable many companies to reduce their environmental and business risk, gain marketing advantages, and allow them to adapt to consumer preferences early. These benefits should create compounding benefits over time.
We believe the investment universe includes large-, mid-, and small-cap stocks with market caps above $2 billion, excluding only early-stage growth companies. Most stocks in the universe represent incumbents in industries that are likely to be impacted by biology in the future.
Putnam BioRevolution™ ETF (SYNB) is seizing the opportunityPutnam BioRevolution ETF is an actively managed strategy that is investing in opportunities created by the innovation already unfolding across sectors. The strategy combines three types of companies:
Technology-enabling companies (20%–40% of the portfolio) provide the materials, equipment, and knowledge to enable biological production. In many cases, these are life sciences tool companies or technology-focused companies. We believe they can achieve higher revenue growth by offering products that help in research, development, production, diagnosis, and treatment procedures.
Disruptive bio or synbio companies (10%–30% of the portfolio) are firms in which biology is a fundamental ingredient of the business today. We believe they will create new markets, products, and businesses as they distribute their core biology or synthetic biology products.
Leading incumbents/early adopters (30%–50% of the portfolio) are companies in industries that are likely to be impacted by the biorevolution over time. We will seek incumbent companies that appear to be the early adopters in their industries to gain operational, environmental, marketing, or other competitive advantages.
The ETF has identified companies poised to benefit from the biorevolution in multiple industries across four key sectors:
Applying our research capabilities in a unique approachAt Putnam, we see the breadth and interconnectedness of the biological revolution. Our hybrid model of equity research is an advantage, allowing deep collaboration across specialized areas of expertise that we believe is ideal for this product. Our approach allows us to integrate the insights of tenured experts with deep knowledge of their sectors, sustainability experts who understand how businesses implement biological processes in their operations, and strategy experts focused on selecting stocks that best fit the strategy.
Learn more about Putnam BioRevolution ETF.
Consider these risks before investing: Biology revolution companies face intense competition and potentially rapid product obsolescence. Biology revolution companies may be adversely affected by the loss or impairment of intellectual property rights and other proprietary information or changes in government regulations. The potential for an increased amount of required disclosure or lack of access to proprietary scientific information could negatively impact the performance of these companies.
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