Investors increasingly recognise the central role of innovation in economies and societies and, as a result, thematic investment is gaining momentum. However, only through fundamental research at the individual company level, can genuine investment opportunities be identified, asset managers and fund selectors agreed at Fund Select Asia’s recent SpotlightOn Innovation webinar.
“We’re living in golden era of innovation and it is providing extremely exciting investment opportunities,” Andy Budden, investment director of Capital Group, told the FSA webinar.
“And we’ve seen that (innovation) especially over the last 5 years, it’s obviously accelerated through the Covid. And I think we’re going to see a lot of it over the next decade,” he added.
Budden said he sees that the future sits on three foundations and these foundations are playing out in a lot of different companies. The first foundation is speed. Particularly the time that it takes for a discovery to be commercialised by innovative companies, such as the fast development of Covid-19 vaccines.
The second foundation that is impacting a large number of companies is cloud computing. “The cloud has turned into an incredible platform for delivering technologies to large parts of the economy and it is driving the fourth industrial revolution, he argued.
The final one is innovation. Innovation is seen in almost every industry and every geography, and Budden highlighted the acceleration of innovation in Asia. “Sometimes innovation is enabled by technology, and it is allowing companies in all sectors to turn their industries on their head, he said.
Echoing Budden’s view, George Saffaye, investment strategist at Newton Investment Management is impressed with the prevalence, speed and impact of innovation across most productive and service sectors.
“We call it digital transformation, where every company is becoming a version of a tech company,” he told the webinar.
Saffaye is especially excited about “mobility innovation and energy transition technologies”.
“Mobility innovation is profoundly impacting businesses, governments, and consumers by materially altering interactions across the mobility landscape. Climate risk is urging governments, enterprise, and individuals to prioritise solutions for harvesting cleaner forms of energy,” Saffaye said.
Advancements in cyber-connectivity, data and analytics, are already transforming the way people use, share, and connect with their vehicles. Progress towards fully autonomous vehicles is augmenting our lives with new features that improve safety; enhancing productivity as commuters are increasingly more connected with matters outside of the vehicle; and transforming socio-economic models as everything from last-mile logistics to new commercial and sharing use-cases grow, he explained.
Turning to fund selectors, Isaac Poole, chief investment officer at Oreana Financial Services, told the webinar that his clients are very much interested in the impact of technological advancement and innovation.
“They’re engaged and eager to know how it’s going to affect their portfolios’ allocations and performance and meet their investment objectives. However, there are so many ‘mega-trends’, which it makes it challenging when we’re allocating, so we rely on a few rigorous frameworks.”
“The growth in thematic investing reflects various mega trends, such as demographic shifts, as well as the changes in society generated by technological advancement, according to Poole.
“We ask managers how they’re thinking about those mega trends, how the companies that they invest in are offering new solutions or better alternatives to as they align with those mega trends,” he said.
Noli de Pala, chief investment officer at TriLake Partners, agrees with Poole that fund selectors must rely on fund managers to make selections on an individual company or security basis.
“About 90% of our assets are managed on a discretionary , and we don’t really get down to the nitty gritty of security selection. We have an investment process that helps identify where will likely derive returns for our clients and the risks are largely beta,” he said.
Themes such as innovation and disruption can generate alpha on a security level basis, which is a role for fund managers, Pala explained.