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Spring Budget 2017: Technology Matters

Claire Dwyer, Fidelity Personal Investing, 09 March 2017

From the days of the dark Satanic mills to the Futurists’ delight in automotive speed, technological progress has been central to the development of the modern age.

No one knows this better than Philip Hammond who yesterday pledged millions of pounds to develop solutions to high tech challenges including artificial intelligence and robotics, next generation batteries and new techniques for manufacturing medicines.

For investors, the ability to tease out the likely long-term stock winners remains paramount.

Within the healthcare sector Hilary Natoff, manager of the Fidelity Funds - Global Healthcare Fund highlights gene mapping and personalised medicine as areas to watch, not just in the UK but across the globe.

Gene therapy focuses on curing disease by replacing the missing or defective gene causing a particular disorder. The corrected gene is delivered to the patient’s DNA through a virus.

“Genomics is where the computer industry was in the 1970s – at the beginning of a technological revolution,” she says.

“The 70s was the right time to be investing in a diversified portfolio of breakthrough computer technologies. Those who did so despite claims that it was too risky were rewarded early.”

Among the key elements Natoff looks for in potential names for the portfolio include companies whose unique products give them superior pricing power, as well as those which are attractively priced.

A stock Natoff holds in the Global Demographics Fund, which she co-manages with Aneta Wynimko, is product innovator Ilumina, which specialises in personalised genetic research aimed at chronic disease and ageing populations.

“Innovations in gene sequencing can be applied to new markets including forensics, agriculture, and complex and contagious disease,” she says.

Another area of innovation Hammond will be keen to stoke is that of artificial intelligence and machine learning.

Jeremy Podger, manager of Fidelity Global Special Situations Fund, which features on our Select 50 list of preferred funds, is keen on Nvidia, the US based technology company.

The firm was founded on graphics accelerator chip technology for the gaming market, in time extending to the mobile, super computer and automotive market.

Podger describes the company as a “unique growth story in the semiconductor sector levered to trends in gaming, virtual reality, artificial intelligence, machine learning and autonomous vehicles.”

While the US currently leads the way in this sector, UK names will likely start to emerge as part of this growing global trend.

The Chancellor explicitly referred to robotics as an area of development in his budget.

While automation – the use of automatic equipment in manufacturing and other processes – has been around for decades, since at least the 1950s in the case of automobile production, interest in the area has ramped up considerably in recent years.

Robotic automation offers an array of benefits for firms. Broadly speaking, robots offer the potential to produce goods more quickly, more cheaply, more safely, with fewer errors and downtime and to a higher quality compared to the human hand.

In theory, these benefits can translate into either lower operating costs and/or higher selling prices (if quality is improved), which in turn should result in higher profit margins.

“E-commerce companies have been early adopters of robotics”, points out Hyun Ho So a global equities portfolio manager at Fidelity. 

Amazon is a good example of how technology companies are thinking ahead of the curve, he says, citing its acquisition of Kiva Systems, a robotics firm that makes hardware and software for material handling and warehouse automation. 

With the adoption of advanced robotics systems, Amazon will continue to drive efficiency in its fulfilment system, thereby strengthening its competitive advantage over traditional retailers,” he says.

In terms of locating the companies that can benefit from the growth in robotic automation, while service robots offer huge long-term potential, the most readily available investments today are still largely to be found in the industrial sector.

In particular, within industrial robotic automation, it is possible to make a broad distinction between the large global industrial conglomerates for which automation/robotics is part of a broader suite of business areas and more focused ‘pure-play’ industrial robotics solution providers.

“With improving technology and mounting demographic challenges, I have no doubt that robotic solutions will proliferate,” says Aditya Khowala, a US equities manager at Fidelity.

“As investors, we can try to pick the specific industry winners or we can try to find those companies that provide the key components that support the wider industry.”

For more fund ideas please check out our Select 50 list of top fund picks.

More on the Spring Budget

Important information

The value of investments and the income from them can go down as well as up, so you may not get back what you invest. The Select 50 is not a recommendation to buy or sell a fund. Reference to specific securities or funds should not be construed as a recommendation to buy or sell these securities or funds and is included for the purposes of illustration only. This information does not constitute investment advice and should not be used as the basis for any investment decision nor should it be treated as a recommendation for any investment. Investors should also note that the views expressed may no longer be current and may have already been acted upon by Fidelity. Fidelity Personal Investing does not give personal recommendations. If you are unsure about the suitability of an investment, you should speak to an authorised financial adviser.

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