(The author is editor-at-large for finance and markets at Reuters News. Any views expressed here are his own)
LONDON, Sept 25 (Reuters) - Tech, pharma, climate -- and now education.
In the race to pick mega-trends amplified by this year's pandemic, education, or at least new technology within that market, is being circled by asset managers seeking alternatives to the already super-expensive tech and pharma sectors.
EdTech -- which has been growing since universities moved to provide open-access Massive Open Online Courses, or MOOCs, more than a decade ago -- is one sector expected to be supercharged by the COVID-19 shock.
And the story goes well beyond emergency home-schooling and online teaching during lockdowns.
In the past week alone, giant asset managers UBS Wealth Management and Germany's DWS have built up EdTech investment cases as a key part of what the UBS report rather grandly dubbed the "Future of Humans".
The investment case centres on two areas of education whose expansion the pandemic is expected to accelerate.
First is the private provision of tertiary or lifelong training as governments struggle to keep funding rising demand, mainly from developing countries. And second is a need for career-long reskilling of workers due to disruptions wrought by automation and digitisation of workplaces.
What has caught the eye of investors -- many of whom are also involved in 'sustainable' investing, another emerging mega-trend -- is the role of EdTech companies in developing artificial intelligence and machine-learning technologies in areas like e-classrooms, virtual reality or interactive modules.
Paul Buchwitz, portfolio manager at DWS Invest SDG Global Equities, a fund that focuses on firms contributing to at least one of the UN's Sustainable Development Goals, said a key proposition is that EdTech is still only a tiny fraction of a huge and growing education market overall.
Sydney-based industry research firm HolonIQ claims global education and training expenditure overall will reach $10 trillion by 2030 from $6 trillion this year -- making it more than $1 trillion bigger than the global auto industry by then.
It assumes the next 10 years will see an additional 800 million second-level and 350 million tertiary or higher graduates -- largely in Asia and Africa -- and a need for 1.5 million additional teachers per year on average.
With that in mind, it estimates EdTech's share of global education spending will rise from just 2.6 percent in 2018 to 4.4 percent in 2025.
"Although the majority of EdTech's technology has been mature for years, it has so far only been used sparingly due to the ignorance and inertia of many decision-makers and omnipresent budget restrictions," wrote Buchwitz at DWS.
"The catalyst of the Coronavirus pandemic has fundamentally changed the situation."
LIFELONG
Investors' focus is mostly on adult learning.
"Education cannot be left to the public sector alone, and this opens up investment potential in both public and private markets," UBS's "Future of Humans" report said, identifying cost as a huge factor. "We see opportunities in Edtech, ancillary services, and companies that have a superior record than their peers in training and developing their employees."
The report forecasts the overall education market will grow at a "high-single-digit rate" over the next decade, with private education expanding most rapidly.
"The market for e-learning, for-profit post-secondary education, language learning, and test preparation should experience a high-teens rate of growth," it said.
Many of the leading lights of EdTech are startups or still private, often based in India, China and the United States. The bigger firms have seen revenues balloon and are having little trouble raising finance.
According to reports, the latest fundraising for India's Byju, a Bengaluru-based startup offering a mobile app that tutors children, values the firm at more than $11 billion. China's online tutoring start-up Zuoyebang's latest funding round valued it at more than $6 billion.
But listed firms have faced the full glare of the market. China's GSX Techedu was a target for short sellers Muddy Waters and Citron Research this year amid allegations -- repeatedly denied -- about the accuracy of its customer base. The company has said it is co-operating with a request for details from the U.S. Securities and Exchange Commission.
And yet despite the allegations, the stock is still up almost 400% year-to-date.
Exchange Traded Funds and indexes give a more measured picture. The Foxberry HolonIQ Education Tech & Digital Learning index -- on which some recent ETF launches were based -- is up about 23% this year. Not quite Apple or the wider FAANGs but better than the Nasdaq Composite's 18% or the flat S&P500.
Analysts at Citi say low tech adoption in education is due to inertia and cost -- digital textbooks may not be expensive but the Wifi network or reading devices might be.
But they added: "We think in the case of education, COVID19-related 'necessity' will end up being the 'mother of adoption'."
(By Mike Dolan, Twitter: @reutersMikeD Editing by Catherine Evans)
