You are here
Getting onto the tech bandwagon
TEXT typing into a search bar is now passe, at least according to Kleiner Perkins Caufield Byers (KPCB), a venture capital firm based in Silicon Valley. In the next few years, at least half of all searches are expected to be conducted using either images or speech.
Another recent technology trend challenging the way business is conducted is cloud computing. From an operational perspective, cloud-based services enable businesses to achieve cost savings by digitising their work processes without the need for physical systems. Data mining of "Big Data" means that businesses can now transform data into insights with the help of powerful analytics tools.
For example, Alibaba creates customised shopping experiences on its e-commerce website through analysing users' online shopping behaviours. This enables Alibaba to create targeted marketing campaigns which help to boost revenues. In marketing to millennials, social media platforms such as Facebook are generating billions with strategically placed advertisements by mining massive amounts of user data.
So how can investors capitalise on the commercialisation of these disruptive technologies?
Investing in disruption
A growing amount of capital, including from pension and sovereign wealth funds, is being directed to investments in technology stocks. This is especially so for those stocks of high-quality Internet companies with strong growth prospects and strong cash flow, many of which are now trading at appealing valuations.
Disruptors in traditional industries, such as providers of web platforms and artificial intelligence (AI), also make for attractive investments. Such disruptors include technology companies that capture market share from incumbent stalwarts. For instance, the road to change for the ailing US automotive industry is not driven by big traditional names such as General Motors or Ford. Instead, the disruptors speeding ahead with electric vehicles and autonomous car driving are companies like Tesla and Google.
According to Tractica, a market intelligence firm that focuses on the technology sector, global revenue for AI products is projected to grow by 57 times from US$643.7 million in 2016 to US$36.8 billion by 2025. This increase will represent the fastest growth among all segments in the technology sector.
At a time when investors are looking for protection against geopolitical uncertainty and a rising rate environment, the technology sector provides potential investment opportunities. The sector has less sensitivity to rising interest rates as most of these companies are well capitalised and has the potential to return cash back to shareholders.
Over the last 10 years, the technology stock benchmark, the MSCI All Country World Index Information Technology, saw annualised returns of 9.06 per cent. The MSCI All Country World Index, largely considered to represent the general stock market, returned a lower annualised return of 4.68 per cent.
Opportunities for retail investors
As a result of these disruptive technology innovations, there would be winners and losers within the sector. We are keen to capitalise on choosing winners with long-term growth prospects as a result of these structural changes. Through active fund management, investments are made based on the fundamental strengths of technology companies - from the business model and the quality of management team to stock valuations. Also preferred are technology companies with durable free cash flow that can be used for capital return in terms of share buybacks or dividends.
For retail investors who want to be in the driver's seat when it comes to technology investments, they can invest in technology equity funds such as UOB Asset Management's United Global Technology Fund.
The fund is invested in well-known global technology stocks such as Salesforce, Alibaba and Tesla, that are at the forefront of using cloud computing, AI and machine learning to grow their business.
With the use of technology continuing to grow exponentially, such companies will likely remain a major contributor to global economies and retail investors should seize the opportunity to tap the long-term growth prospects arising from technology and innovation.
- The writer is the senior director, international equities, at UOB Asset Management. For more information on the United Global Technology Fund, please visit uobam.com.sg