Working from home requirements and the move online to buy goods and services to run our personal lives has led to a massive acceleration in the adoption of e-commerce, according to Mark Hawtin, GAM’s investment director responsible for disruptive growth and technology portfolios.
“Out of all the areas within equities, disruptive growth has seen the most significant increase,” he told a recent media briefing.
Sceptics might argue that an end to lockdowns will prompt most sociable people to invade shopping malls, restaurants, pubs, cinemas, theatres, concerts and sporting events – indeed, any group activity to avoid their laptops.
However, Hawtin insists that anything related to the cloud, working from home or e-commerce will continue to see a “huge acceleration in usage”.
“Most companies operating within the disruptive growth space will not see any deterioration in their growth prospects. In fact, they will see an increase which will make them stand out compared with the many companies that do not have that opportunity,” he said.
His thesis is partly predicated on the functioning of Moore’s Law, which states that the number of transistors in a dense integrated circuit double every two years, and Metcalfe’s Law, which postulates that the usefulness of a network expands exponentially with every new user.
In the US, 12% of transactions are “order ahead and go”, digital campaigns generate as much as $4 of revenues for every $1 invested, and two-thirds of transactions and three-quarters of customer interactions are digital, Hawtin added.
Disruptive growth
Hawtin manages the $329m GAM Star Disruptive Growth Fund, which has posted a three-year cumulative return of 82.60%, outperforming its benchmark MSCI World Growth index (59.53%) and the tech sector average (60.14%), according to FE Fundinfo.
The fund is up 58.17%, in line with both its benchmark and peers, since this year’s market nadir on 23 March.
Most of the portfolio is allocated to information technology (40%), followed by consumer discretionary (16%), communication services (14%) and healthcare (8%), with top holdings including Intuitive Surgical, Alibaba and Facebook, according to the most recent factsheet.
The shift in consumer and business habits will “also mean that we will see some of the structural losers, that is incumbent companies, which had been losing their market share slowly, begin to lose their market share more rapidly,” said Hawtin.
“There will be a polarisation between winners and losers,” he said.
Hawtin believes that the disruptive growth sector can be split into three buckets, namely: cyclical and value that “does not look expensive”, despite few signs of economic recovery; core growth, which is “fair-to-expensively valued but not outrageously so”; and the “hot” stock group, made up of working from home businesses and next generation names “where price action is reminiscent of 1999-2000”.
“It is important to divide the market like this, because there is a clear stratification, unlike previous bubbles where all names were overvalued,” he said.
The sectors with most potential include pharmaceuticals, personal products, software, technology hardware and media, according to Hawtin.
In contrast, the most vulnerable are capital goods, insurance, banks, utilities and energy, he said.
GAM Star Disruptive Growth Fund vs benchmark and sector average
