The five largest companies in the US are all technology firms. Apple, Amazon, Alphabet (Google’s parent), Facebook and Microsoft dominate the US stock market and, to a certain extent, also dominate our lives.
At one point in April, Amazon and Alphabet combined were valued higher than all the quoted British companies put together. But they have not always been giants. Amazon, now the poster child of all things e-commerce, began life 26 years ago just selling books online. Google, the search engine, has also expanded into other areas and is now so widely used it is also a verb.
Technology is an exciting sector and touches almost every part of our lives, so this month my focus is on a few new technologies and the funds investing in them.
ASI Global Smaller Companies fund has 28% invested in technology companies. Co-manager Alan Rowsell cites Chegg, a US online education company, as a current disruptive force.
“Chegg provides study tools to help students with their coursework,” he says. “It is an example of a company that has used the internet to disrupt and improve on traditional teaching methods.
“The structural shift to online education was already apparent prior to Covid-19, with subscriber growth of 29% in 2019. But the shock of the virus has accelerated that trend as students are forced to study from home. While this will slow once lockdown is lifted, we think it has driven a step change in adoption that is unlikely to reverse.”
Powering cars by renewable energy
Ninety One Global Environment fund has 29% invested in the telecom, media and technology sector.
Co-manager Graeme Baker told me about one his top 10 holdings, global technology firm Aptiv. “Lowering emissions to levels that avoid the worst effects of climate change will require a rapid shift away from internal combustion engines to electric, and ultimately autonomous, vehicles powered by renewable energy,” he says. “With deep capabilities in software development, automotive-grade industrialisation and systems integration, Aptiv is helping to make transportation safer and more sustainable.
“The market seems to value the business like an ordinary auto parts supplier. But Aptiv could play a key role in changing the way the world gets from A to B, giving it significant growth potential in our view.”
Organising our business contacts
My younger colleagues tease me about still using business cards (and the rather smart Rolodex sitting on my desk), but I am not alone in this custom, according to Archie Ciganer, manager of T. Rowe Price Japanese Equity fund, which has 37.9% invested in IT and IT services companies.
“Japan is a highly respectful and polite society and the exchange of business cards is a very important business practice,” he says. “It is common that the first five minutes of a meeting is just used for exchanging cards. This requires much maintenance and organisation to manage contacts and clients.
“Sansan provides business card management solutions – it digitises the process by scanning the cards, which reduces the administration process of card management, but also allows you to integrate networks and contacts, almost like LinkedIn. It charges a fee for the software service, but also has the option of in-app advertising and recruiting services.”
With so much more data going into the cloud, more infrastructure is needed.
Kunjal Gala, co-manager of Hermes Global Emerging Markets SMID Equity fund, which has 23.5% invested in tech firms, say Accton Technology, a Taiwanese hardware supplier for networking infrastructure, will be a beneficiary.
“The outlook for data-centre spending remains favourable, as the world’s largest ‘hyperscale’ firms [the aforementioned Alphabet (Google), Amazon, Apple, Facebook, and Microsoft] are expected to maintain healthy levels of capital expenditure in 2020 to support rising demand for cloud services, digital entertainment and e-commerce activities,” he says.
“We expect the recovery in cloud infrastructure growth, along with technology migration, to act as a key growth catalyst for the company.”
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Darius’s views and those of the investment professionals quoted are their own and do not constitute financial advice.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
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