Themes in focus: education

Five reasons we like the education investment theme.

FacebooktwitterlinkedinmailFacebooktwitterlinkedinmail   by Tertius Bonnin, 22nd July 2020

Education is a cornerstone of modern society with its benefits positively impacting both individuals (in the form of higher productivity and increased earnings potential) and governments (in the form of higher taxes). Further, education enables an increased level of social mobility and longer average lifespans.

We outline five key reasons we like education below:

1) There is no substitute for a quality education

We can trace back the evolution of academia well over 2,000 years and study how education – that is the process of passing on knowledge – has enriched our society today. It is through this process that we as a species have been able to incrementally improve our knowledge generation-to-generation and reap the rewards of high levels of productivity, improved quality of living and longer lifespans.

2) Emerging markets per capita spend set to increase

In the developed world, governments are held widely responsible for the provision of education. This has led to education being a key area of both government spending and reform as policymakers attempt to attract inward investment. Emerging markets on the other hand have significantly lagged OECD peers on a per capita basis and estimates are that they could be 100 years behind the education level of developed markets.

To overcome this, many emerging nations have been looking to developments in digital learning and are at the forefront of developing educational technologies (EdTech) to help make capital spending more efficient.

3) As the global population swells, so will its thirst for knowledge

The demographics behind the education theme are extremely supportive. Today, there are in the region of 1.5 billion students from primary through tertiary with China and India alone accounting for over one third of the student population. As population growth in emerging markets continues to outpace that of developed nations, UNESCO estimates the majority of the circa 2 billion children who will be alive in 2050 to be in emerging markets which would put significant strain on existing infrastructure.

As such, we believe the private sector will play an increasingly important role in the provision and development of education.

4) Workforce disruption will only create more demand for new skills

While artificial intelligence, robotics and other forms of automation will likely bring great economic benefits, these great innovations are often met with concern as the technologies are forecasted to cause significant job displacement among low skilled workers. As large parts of the workforce require new skills, this creates another opportunity for education providers in areas such as adult retraining and vocational education.

5) Technological developments usher in a breadth of opportunity

It is estimated that just 2% of the circa $5 trillion education market is digitised meaning the industry is rife for disruption by a rapidly growing global EdTech industry. Two particularly interesting areas that could take hold of the industry are shifts from print to digital textbooks and from classrooms to online learning. These trends are being enabled by continuous developments in other areas of the economy such as broadband infrastructure and increasingly widening access to mobile phones or tablets.

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About the author: Tertius Bonnin

Tertius joined EQ in 2016 and is responsible for covering investment ideas within US, Global and Thematic equities. He sits on the fund selection committee and also supports the portfolio managers across a range of other responsibilities.

He passed Level I of the CFA exam in 2018, holds the Investment Management Certificate and has a BA in Business with Finance. He enjoys a variety of sports including skiing, cycling and running – and when not in the office he experiments with Asian cuisine.

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