However, negative macroeconomic and geopolitical commentary means the investment community risks losing sight of the fact that something much more exciting and profound is going on and will continue to go on.
Insync CEO, Monik Kotecha says, ‘Megatrends, such as those driven by technological change, for example, are rapidly and exponentially reshaping the world. So much so, that we are actually at a defining moment in history, which presents extraordinary investment opportunities.’
While slow to form, megatrends are extremely powerful waves of change. They significantly influence the future, possess an aura of inevitability, have a far and wide-reaching impact on society and are nearly impossible to reverse.
‘Companies riding a megatrend wave are largely impervious to market conditions,’ Mr Kotecha says, ‘So over-focussing on the macro and geopolitical environment may be counter-intuitive.’
He says opportunities for investment lie in companies that are riding a megatrend wave, are benefiting from it, and are also profitable, with debt-free or low-debt balance sheets, and above-average earnings growth.
‘Over the long term it is sustainable earnings growth that drives share prices,’ Mr Kotecha says. ‘The last two years proved that companies with these attributes that are also harnessing the power of a megatrend, have great resilience and strength. They not only survived but thrived, despite what can only be described as a stormy macro and geopolitical environment.’
Mr Kotecha says the recent significant surge in the share prices of artificial intelligence (AI) related companies is a good example of a megatrend at work. ‘Many of these companies are some of the most profitable in the world, with little or no debt on their balance sheets,’ he says. ‘Adobe is a case in point. The company has been riding a technological innovation wave for years, as evidenced by its long history of investing in artificial intelligence.’
Adobe has come to dominate in content creation software with its iconic Photoshop and Illustrator solutions, both now part of the broader Creative Cloud.
‘Adobe has been leveraging its AI engine, Adobe Sensei, to power new AI features across its different product lines. Many of these new AI features, especially for Creative Cloud products, represent a potential paradigm shift in the day-to-day workflow of content creators. This has been significantly enhanced with the recent unveiling of their generative artificial intelligence services for creative professionals and marketers. They include Adobe Firefly, a new family of creative generative AI models focused initially on image generation and text effects.’
Mr Kotecha says large Global 1000 companies are highly constrained in their ability to create content for marketing and other purposes. Generative AI could significantly speed up content creation and Adobe is well-positioned because clients require trust in any content generation.
‘It is an extremely profitable business which is in a strong position to benefit from the exponential deployment of artificial intelligence,’ Mr Kotecha says.
More than 30% of Insync’s portfolio is exposed to the technological megatrend, either directly through companies that provide the processes to manufacture AI chips, what can be described as the ‘picks and shovels’, to companies providing the large language models (LLM) and machine learning models (MLM), through to software and analytics companies that are embedding these tools to accelerate their growth rates.
About Insync Funds Management
Established in July 2009 by Monik Kotecha and Garry Wyatt, Insync Funds Management Pty Ltd (Insync) is a global equities manager based in Sydney with Equity Trustees as its RE. A high conviction, bottom-up, quality style manager, Insync employs a valuation-based approach, selecting stocks from a concentrated group of global large cap companies. These stocks must meet Insync’s rigorous filters, benchmarks and hurdles, and be beneficiaries of one or more of 16 global megatrends that Insync has identified are key predictors of growth. They must also consistently allocate capital efficiently, with high returns on investment capital (ROIC).
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