Can disruptive tech future-proof your investment portfolio?
For those companies embracing disruptive innovation, there are rich rewards in efficiency, analytics and security.
Below, three fund managers assess how investors may be able to future-proof their portfolios by accessing companies at the forefront of industry disruption.
Automating the white-collar work force
Philip Harris, manager of the EdenTree UK Equity Growth fund, says…
We see a compelling opportunity in software robots and robotic process automation (RPA), highlighted by one study showing 47% of US jobs could be automated within the next ten years. The market leader in RPA is Blue Prism. The investment case is that any repetitive task can be automated by rule-based processes. This presents huge cost and productivity savings. This recurring revenue stream licence fee model is the equivalent ‘wage’ of the software robot.
While there is limited patent protection in respect of Blue Prism’s technology, IBM’s position as key partner underlines the technology is not easily replicable. The US key market business remains pivotal and the company continues to grow its channel pipelines to drive sales. The company maintains high gross margins. However, it is highly operationally geared with new customers and may be loss-making while it grows rapidly. Earnings forecasts remain conservative.
Blockchain & bling – transparency in the diamond industry
Claire Shaw, manager of the OYSTER European Mid & Small Cap fund at SYZ Asset Management, says…
The diamond supply chain is static, inefficient, inflexible and uses an entrenched system that hasn’t changed in over 100 years. This makes it ripe for disruption and change is inevitable. Through its recent acquisition of Clara Diamond Solutions – a digital platform that uses blockchain technology – diamond producer Lucara Diamond Corp is looking to shake up the opaque system of buying and selling diamonds in an attempt to boost transparency in the industry.
Polished stone manufacturers currently specialise in a shape, cut or quality. Clara is a commercially scalable, secure digital platform that applies computing algorithms to match rough diamond production to polished stone manufacturing demand on a stone-by-stone basis, thus unlocking the best value for every stone. This blockchain technology improves the dollars per carat ratio for producers – providing a stable, continuous cash flow which is not tied to fixed sales tender cycles – while making inventory and financing more efficient for manufacturers.
Moreover, by creating a virtual ledger of diamond sales, the technology can ensure all registered diamonds are not ‘blood diamonds’ used to finance war and terror or synthetic copies being passed off as real.
Sky’s the limit for cloud-based applications
Ben Peters, portfolio manager of the Evenlode Global Income fund, says…
The recent reporting season highlights some of the ways in which companies are having to adapt as the second decade of the 21st Century rolls on. The current archetype of a fast-moving industry is IT, and it is certainly reshaping the world during the data revolution.
What were once start-ups – Apple began life in Steve Jobs’ garage in 1976 – have now matured into market-defining behemoths. Even these beasts need to keep on their toes, which they are doing by reaping some of the rewards for years of investment in the next phase of technologies.
Microsoft’s business is now being driven by its Azure cloud platform, which allows companies and developers to host their applications in an always accessible environment. Intel has focused its research and development efforts on data centre-focused processors, and invested capital in the capacity to produce them, again to facilitate cloud-based applications.
Both of these firms have used the resources generated from their dominance in the first wave of the information era – producing PC operating systems and processors respectively – to develop the next.
The increasing adoption of cloud technologies is showing itself in positive corporate results, an acceleration that is somewhat disconnected from the macroeconomics that drive other industries.