In many ways, finding the next revolutionary technological development is the Holy Grail of investing.
Imagine your returns if you’d known early on what impact the iPhone would have, or the importance of social media platforms. These things have resulted in the companies that incubated them becoming among the largest in the world, and have made a few people fabulously wealthy along the way. Alphabet, the parent company of Google, will this week update the market and provide further evidence of that.
For most of us, however, spotting such game-changers early on is near impossible. By the time we understand the importance of a technology the chances are that the rest of the world has cottoned on too. Thankfully, there are ways to increase your chances of backing game-changing technology early on. Pooled investments, like funds and investment trusts, allow us to invest in a whole range of companies developing new technologies, or the sectors or regions where the next big thing is likely to emerge from.
The Polar Capital Technology Trust is an investment trust managed by one of the most experienced tech specialist managers, Ben Rogoff. The trust invests in all manner of tech based companies but recent themes have included games software, including developments in Virtual Reality - the technology that allows users to be immersed in game play. One of the runaway successes in this area has been Fortnite, the online game where players compete in ‘Battle Royale’ scenarios. The game is a phenomenon with not only millions of players, but also millions of people happy to simply view gameplay on YouTube. It has been developed by Epic Games, an American developer, which is now 40% owned by Tencent, the Chinese tech giant, which is the fourth largest holding in the Polar trust.
Shares of the trust currently trade on a discount almost 5% compared to the value of its assets, which is relatively cheap compared to its recent history.
Another approach to investing in technology is to look for areas of probable need - growing issues that will need technological solutions. The Fidelity Sustainable Water & Waste Fund is an example. It’s based on the growing evidence that innovations in how water is distributed, and how to keep cities clean and liveable, will be in great demand in the decades ahead. As the developing world catches up and populations there shift from rural to urban living, water and waste related problems will become even more acute.
The opportunities it looks for are not limited to new innovations, but also includes companies that stand to benefit tangentially. These include Water Corp, a company that provides the equipment for laboratory testing for the water industry.
A feature of technology investing is that the small outfits that actually come up with new innovations are often quickly bought up by larger conglomerates. For this reason, those looking for broad exposure to technology may see the value of buying shares in individual companies in order to access the smaller subsidiaries that are held within them.
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Obvious examples are Amazon, the e-retailer, and Alphabet, parent of Google. Amazon has led the way in ‘the internet of things’, the idea that objects are internet-enabled to allow them to become endlessly more useful. The Amazon Echo, of ‘Alexa’ fame is perhaps the most famous example. Google, meanwhile, has been building a portfolio of new technology innovations under its ‘Other bets’ banner. This includes ‘Waymo’ the division developing driverless cars that could, one day, change the face of transportation. Not to be outdone, Amazon has responded with reports this month of a trial of driverless delivery robots in Washington State.
Finally, a great way to access the world’s best technology investments is by going to the regions where innovation is greatest. For robotics and automation, that means Japan. The country is a forerunner for the rest of the world when it comes to demographics - its population has been ageing ahead of the rest of the developed world, which is now undergoing the same change. This has created demand for robots to help older people, and to help companies who need to become less reliant on a large, young workforce. Baillie Gifford Japanese, managed by Matthew Brett, holds positions in several companies operating in the robotics space, including SoftBank, one of the largest automation specialists.
The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Overseas investments will be affected by movements in currency exchange rates. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.