Investment opportunity lurking below the water's surface

Fidelity's Marc Grow dives into recent advancements driving untapped investment potential for underwater drones.

• Underwater-drone technology is poised to revolutionize various military and civilian applications by offering a unique blend of innovation and practicality, opening up a sea of buoyant investment possibilities, according to Fidelity Portfolio Manager Marc Grow.
• "Based on fairly new, rapidly expanding advances, these submersible marvels offer a cost-effective and scalable solution for data collection and other critical missions, all while minimizing risk to human life," says Grow, who manages Fidelity^® Small Cap Stock Fund. "I believe the shift toward smaller, more-versatile subaquatic technology is not just a trend, but the beginning of a strategic oceanic evolution."
• In helming the diversified domestic small-cap core strategy, Grow favors businesses with an honest and capable management team, superior return metrics, and strong free-cash-flow generation. His investment framework tends to be value-oriented and biased toward high-quality businesses.
• As Grow sees it, the nascent industry for underwater drones could be on the verge of a major leap forward akin to the transformative impact of aerial drones in recent military conflicts where these low-cost tools have demonstrated meaningful capabilities.
• "Cutting-edge improvement in underwater drones is at least a decade behind their aerial counterparts, meaning this lag makes the market ripe for growth," Grow explains. "I believe the ability to deploy these devices at greater scale and a fraction of the cost of larger, manned vessels holds tremendous promise for Western navies over the coming decades."
• He goes on to consider the current state of underwater infrastructure: Pipelines and other submerged assets require constant monitoring and protection from both accidental and intentional damage.
• "These are critical energy and communication infrastructure assets," Grow points out. "Look no further than the recent incident in the Baltic Sea, when two subsea telecommunications cables — one connecting Finland and Germany, the other linking Sweden and Lithuania — were cut."
• These cables are vital to global internet connectivity, as they are responsible for the vast majority of intercontinental data traffic around the world.
• Grow highlights that Western navies have traditionally focused on large-scale projects like nuclear submarines and aircraft carriers, which are both extraordinarily costly and time-intensive.
• "In contrast, underwater drones offer a nimble and cost-effective alternative, capable of performing critical tasks without the need for human operators," he notes. "They also play a crucial role in safeguarding armed forces."
• Grow cites Canada's Kraken Robotics as a firm that has positioned itself as a leader in this burgeoning industry. A fund holding as of December 31, the company offers a diverse range of products — including sonar systems and pressure-tolerant batteries — that are designed to operate at depths of up to 6,000 meters, he says. Kraken also manufactures a vehicle launch and recovery system for safely and efficiently bringing drone units in and out of the water.
• "Unfortunately, many of these emerging defense technologies remain private investments, but I will continue to scour the depths of the market for additional investment opportunities that align to both this theme and my investment approach," Grow concludes.