Among the risks on the radar of investors in global financial markets, the risk of owning a company that’s vulnerable to disruption has to be high on the list.
Next to global trade wars, unwinding of monetary policy, stability of banking systems, pockets of political uncertainty – the list goes on – technology disruption has as much potential to unwind hard-earned investment returns as anything that might be looming on the horizon.
Technological change is moving swiftly, says Chris Wheldon, a portfolio manager on Aussie global manager Magellan’s new high conviction fund. Wheldon is delivering a paper on Investing for the Future: Technology and business model disruption at the CIMA Society of Australia’s Annual Conference, on October 30 and November 1 in Melbourne and Sydney.
“I spend a lot of time thinking about how things will be disrupted,” said Wheldon, who recently returned to Magellan after spending a couple of years at a US-based asset manager.
Magellan’s high conviction strategy just completed its five-year track record at the end of July. The high conviction fund was borne out of Magellan’s flagship Global Fund but holds far fewer positions (eight to 12 stocks compared with between 20 and 40 in the flagship fund), has the ability to hold more cash (up to 50 per cent) and has no risk constraints.
Avoiding the losers and picking the winners is easier said than done is a world where ecommerce platform Amazon is jumping across previously impenetrable industry silos – from healthcare to education, financial services, not to mention traditional retail and even new and emerging ecommerce businesses. Meanwhile, social media platform Facebook has already disrupted the traditional advertising market, taking revenue away from media companies.
Finding and investing in quality businesses able to continue to deliver earnings, year in and year out, is the best way to sort the disrupters from the disrupted, Wheldon says.
Many investors wanting to find disrupters that are taking over the world get caught up in ‘blue sky’ investing and forget about quality and earnings, he explains.
The top five holdings in Magellan’s high conviction portfolio include a smattering of technology and some more traditional names. Alphabet and Facebook are the two largest holdings; combined, they account for 25 per cent of the value of the overall portfolio. Visa, Kraft Heinz, Starbucks and Apple are other top holdings in the 11-stock portfolio.
Investors wanting to find the next disrupter almost certainly will be looking within the technology sector. But Wheldon urges investors to look beyond that catch-all description, as he calls it, and think more deeply about the segments that underpin it.
“Sure, companies including Microsoft, Facebook and Apple are technology companies, but are more accurately software companies, advertising and consumer hardware companies,” he explains.
Wheldon will join a line up of investment professionals and regulators, including ASIC commissioners Cathie Armour and John Price, as well as investors from industry and for profit funds at the CIMA Society Australia conference.
