Longevity isn’t what it used to be. As the pace of innovation in technology picks up, the average lifespan of companies on major equity indices is shrinking. Consider the following: in 1965 a typical S&P500 company could expect to spend 33 years on the index. By 1990 that average had fallen to 20 years – by 2026 that number is expected to have shrink again, to just 14 years.1
The implied churn rate could mean that, over the next 10 years, about half of the constituent companies on the S&P 500 will be replaced.
This raises a key question. If the revolving doors of key index constituents turn faster and corporate lifecycles become shorter, how should investors respond? We believe investors can take two paths: harness the disruptors themselves or identify and invest in the beneficiaries of their disruption.
George Saffaye, global investment strategist, Mellon.
1 INNOSIGHT, Anthony, Scott D et al: ‘2018 Corporate Longevity Forecast: Creative Destruction Is Accelerating’, 2017.