CPR’s Lebeau looks at disruptive winners
Launches of innovative thematic funds have peaked over the last two years, most of them being focused on the so-called robotics trend.
At the start of 2017, Amundi’s thematic center CPR Asset Management unveiled the CPR Invest Global Disruptive Opportunities fund, a strategy that encompasses all themes with disruption as a common point, according to fund manager Wesley Lebeau.
Speaking to InvestmentEurope, Lebeau recalls disruption was theorised in the 1990s as the faculty of transforming an industry or creating a new market within an existing one.
CPR’s disruptive fund hence picks up stocks from a broad investment universe that relies on four pillars (digital economy, lifescience & health, industry 4.0 and Earth) and in which around 44% of companies were not listed 10 years ago.
Lebeau says the link between the evolution of silicon and the way technologies have improved for the last three decades has been a big driver of disruption. “We find silicon at the start of all four dimensions covered by the fund,” he adds.
As the world plunges ever more into digital economy with the emergence of fintechs and big data, CPR’s portfolio manager observes that the digitalisation trend is spreading over other industries.
“A spillover effect can be seen in the healthcare sector which is at the crossroads of medical research and rise of technologies. Patients’ DNA is being sequenced in order to improve the precision of the diagnosis and the effectiveness of their treatments,” Lebeau says. A line added to the fund last May has been Exact Sciences which produces Cologuard, the only FDA approved stool DNA noninvasive colorectal cancer screening test.
Lebeau observes the rise of robotics and artificial intelligence in hospitals with the use of robots Watson and Da Vinci that respectively analyse appropriate treatments for patients’ diseases and perform surgeries. Intuitive Surgical, that has performed 700,000 surgeries with a robot in 2015, remains among the stocks held in the portfolio.
Though the use of robots raises concerns around responsibilities in the event surgeries would fail but Lebeau pinpoints human risk is reduced when robots perform surgeries and that both patients and hospitals benefit from it.
Tackling the fear of robots taking over human jobs, CPR’s fund manager suggests that Germany and Japan are currently the two countries where the use of robots is well established in the manufacturing sector and that both countries reach highest levels of employment in the manufacturing sector across the world.
Over 61% of the companies invested by the fund as of end May 2017 are headquartered in the United States. Is tomorrow’s world being shaped by the US then? Lebeau answers the US have been the starting point of disruption in many sectors, quoting the examples of Amazon and Tesla, but that competition is getting tougher on hiring talents as well as on new industries’ research for idea generation across the world.
“China has put huge resources into research. Europe is a tech hub on the rise, generating new ideas,” Lebeau pinpoints. The fund manager notes that disruptive companies benefit from a more favourable environment to grow in the US though. It will be difficult for Europe to fill the gap he says as disruptive start-ups tend to move to the US at a certain point.
Alphabet remains the top position of the CPR Global Disruptive Opportunities fund as Lebeau says the “mini-lab of disruption” presents some good upside and has low volatility. It also maximises all criteria the management team looks at for its stock-picking.
As for the fund’s exposure to tech giants forming the GAFA, CPR’s fund manager also holds Facebook in addition to Alphabet but has not picked Apple nor Amazon as he believes Facebook and Alphabet show a much stronger model than the two others.
Virtual vs Augmented reality
But in the tech sector, winners are to be found in the cyber security space according to Lebeau who says firms involved in the sector have been “massive outperformers over the last two years.”
The fund had smaller positions in cyber security at its inception but assets were reallocated to the segment in January at the expense of robotics.
“We strongly feel that we are going to see a growing interest in all things related to cloud computing. Software as a service companies (SaaS) had revenue of €700m in 2006. In ten years, the figure rose to €36bn and this is only the first stage of Saas acceleration. Next year, Saas firms are expected to earn revenue of €92bn.
“The more we are getting into a digital world, the more cyber-attacks will occur. Firms are allocating more budget to cyber security in order to protect their critical data. Recent cyber-attacks have had an accelerating effect. Chief technology officers are becoming key persons in companies and if they do not take the right decision on the cyber security architecture to adopt in their firms, they can be fired,” develops Lebeau.
The portfolio manager of the CPR Invest Global Disruptive Opportunities fund also notes that recent M&A activity in the tech sector is much connected, even indirectly, to cyber-security.
Another segment that Lebeau puts forward is the augmented reality he favours to virtual reality as he believes the technology for virtual reality is not ready yet.
“When Facebook bought Oculus, it picked out virtual reality as what would be the most innovative tech ever. If Facebook would not have done this acquisition, we would have had more time to develop virtual reality. Augmented reality seems more mature. Ever more people will adopt it because it increases efficiency and productivity at work.
“For instance, mechanics fixing airplanes’ turbines are using augmented reality. It is a time saver because they have the map of the turbine on their phone and they can fix it in 31 minutes whereas it takes them one hour to do it without augmented reality,” Lebeau says.
Regarding Earth issues, Lebeau sees the COP21 agreement as a game changer and observes a major push for the production of renewable energies. Some of the names held in that bucket include Core Laboratories, that provides technology to enhance oil production, and Danish wind turbine manufacturer Vestas.
The Earth dimension of CPR’s fund also considers stocks of firms involved in precision agriculture. Data collection becomes preponderant for farmers to maximise their output.
“There is a consensus about the need for a slowdown of intensive agriculture. Data collection is a way to improve farmers’ production without chemicals. Appropriate data and research could increase the size of vegetables and fruits by some 10-15%,”concludes Lebeau.