Which tech themes offer the greatest potential for outperformance this year, as well as diversification?
There are two drivers we expect to dominate the market this year. Beginning at the back end of November we saw the beginning of a major market rotation as the start of central bank tapering coincided with the realisation that heightened inflation was less transitory than thought, driving a resetting of future interest rate expectations higher. The first quarter of 2022, we saw a continued shift in global attitudes towards sustainability, catalysed by the Russia-Ukraine conflict, along with proposed regulatory changes across the globe. Europe responded to its dependence on Russian commodities with a range of pledges to accelerate spending on clean energy, while governments and enterprises globally have responded to the elevated cyber threat landscape with increased spending on security software. From a regulatory perspective, the EU social taxonomy and the SEC’s proposal for Taskforce on Climate-Related Financial Disclosures (TCFD) -aligned carbon disclosures for public companies reflect the increased focus on sustainability from both regulators and investors.
How is the tech opportunity set likely to evolve in 2022 and beyond?
As we look to invest in the innovation of sustainable technology we are cognisant of a major market inflection after over a decade of quantitative easing and zero interest rates post global financial crisis and more lately due to the pandemic. Tapering and rising inflation driving higher interest rate expectations are less supportive of higher duration stocks and unprofitable companies. Our investment philosophy is centred on navigating the hype cycle of technology and a rigorous valuation discipline focused on unexpected earnings and cashflow. This limits our exposure to those stocks more vulnerable to this market inflection but we still expect volatility given this backdrop.
To what extent do investors need to be wary of ‘fads’ within the tech space?
The team’s investment philosophy and style was forged in the aftermath of the dot.com crash so it is not surprising that valuation discipline is at its core. Currently, over 30% of technology stocks are set to be unprofitable over the next year and we have seen unprofitable technology companies significantly sell off and as a consequence many technology funds have been adversely impacted as a result. By investing in a low carbon, technology for good portfolio we can naturally access the largest and longest runway growth markets and by navigating the hype cycle.
The Fund Selector Asia Investment Forum Philippines was held on 12 May 2022 and was sponsored by Janus Henderson Investors, Jupiter Asset Management, Pimco and TT International.
Find out more about what was discussed and the strategies that were presented here: https://fundselectorasia.com/events/fsa-investment-philippines/
