Intangibles: Capitalism without capital?

In a rapidly changing world, so-called ‘intangibles’ are playing an increasingly important role
Steven Bell

Steven Bell

Managing Director, Portfolio Manager & Chief Economist, Multi Asset Solutions


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In a rapidly changing world, so-called ‘intangibles’ are playing an increasingly important role for investors. Intangibles can be defined as assets, such as goodwill, brand recognition and intellectual property, that are not physical in nature.

This would also include the software technology that powers internet giants such as Facebook and Google, as well as the operating procedures of Starbucks or the value of the Coca Cola brand.

Artificial, or augmented, intelligence and the associated value extracted from Big Data are important intangibles, which must be analysed and assessed when valuing equities. While these analytical tools are commonly exploited to grow revenue and profitability of the major technology disruptors, the usage of data analytics is now spreading to the more conventional players, including financial service providers, with a view to also enhancing shareholder returns.

Companies focusing on intangibles tend to have capital-light business models. Their output is often highly scalable, facilitating massive growth in their networks without a corresponding surge in input costs. As we discussed in last year’s Forum, this has coincided with growing concentration within sectors well beyond technology and, ironically, a decline in dynamism. This has in turn led to a rising share of profits at the expense of labour. Political forces such as regulation rather than economic pressures may ultimately contain concentration but, for now, these are arguably operating in reverse, at least in the United States.

Risk Disclaimer 

Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned.

Are capital light business models keeping inflation low and extending the economic cycle?

The trend we have seen towards increasing concentration and more monopolistic power with corporates is likely to persist and may increase through time. As a result, profit margins are likely to be sustained at historically high levels even if there is an economic downturn in coming years. Indeed, the next recession may consolidate the position of dominant firms in some sectors. The future winners are therefore likely to be the owners and providers of capital.

As investors, our challenge is to identify those winners – businesses that have sustainable competitive advantages.

Intangible and tangible investment in Europe and the United States

Graph presenting Shares of GDP(%) for Tangible Investment and Intangible Investments in 1997-2012

Source: Haskell and Westlake (2014) calculations based on INTAN-Invest database (

Intangible and tangible investment in Europe and the United States. Countries are Austria, Czech Republic, Denmark, Finland, France, Germany, Italy, Netherlands, Spain, Sweden, UK, US.

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