businessman hand working computer and business strategy concept

Speakers at the Inside ETFs conference in Florida this week acknowledged fears of slowing global growth and a pending end to the bull market — though there wasn’t consensus on when that end would come.

But new research provides reason to be optimistic about the next wave of economic growth. Joe Davis, global chief economist at Vanguard, presented the concept of the Idea Multiplier, a proprietary measure developed by his firm.

The measure looks at the number of times influential published research is cited and built upon in subsequent articles. The multiplier is “a leading indicator of commercial innovation,” Davis said, adding that it’s meant to predict future products and services that will launch in five to seven years.

The multiplier was at 40:1 in 1980, which means 40 ideas would later come from a single idea. It rose in the late ’80s, particularly in the fields of computers and telecommunications. “It was anticipating the commercialization of the internet,” Davis said.

From 2003 until about 2015, the multiplier was stuck near 200:1, Davis said. It’s close to 400:1 now — meaning that the measure rose at a similar pace as in the 1980s. “I was shocked when I saw this,” Davis said.

Vanguard’s research paper says this uptick suggests a productivity increase to 1.2% annually over the next five years. For perspective, 1.2% productivity growth is double the post-2000 average of 0.6%,” the authors wrote. “It is even higher than the 0.8% growth during the 1990s internet technology revolution.”

Davis attributed the multiplier’s recent increase to two main factors. First, diffusion of knowledge across borders and exchange of ideas across fields is accelerating. For example, China contributes to 25% of new ideas, he said, and those ideas are being cited in the U.S. and Europe.

Second, building-block technologies such as cloud storage, artificial intelligence and machine learning are “smashing together,” Davis said, adding that signs point to innovation happening outside the silo of technology.

Vanguard found that the fields with the highest Idea Multipliers are advanced materials (e.g., next-generation transistor and computer circuitry, carbon fibres); transportation and energy (e.g., autonomous and sustainable energy); manufacturing technology (e.g., robotics, engineering) and genetics (e.g., genome mapping). Davis said genetics had a multiplier of more than 3,000:1 — a multiplier he’s never seen before.

One macro implication of this research, Davis said, is that value will eventually return, though his firm is more pessimistic in the near-term. He pointed out that the industries with the highest multipliers included energy and healthcare elements — “those sound more like value than growth stocks to me,” he said.

Davis acknowledged that investors should be cautious in today’s markets. “But don’t underestimate human creativity,” he warned, saying that he’s optimistic about growth over the next decade.