With global technology stocks enjoying strong returns, the big question is whether another tech bubble is brewing? While some market analysts say ‘yes’, GERRIT SMIT, Head of Equity Management at Stonehage Fleming, has a different view.
“The returns being produced in the technology sector are based on real organic growth that is occurring right now; not on the prospect of future growth, which was the case during the dot.com bubble of 1997 to 2001.”
Smit says that many of the major technology businesses are creating significant free cash flow currently, which is funnelled to shareholders through successful reinvestment or through dividends. “This is an important cornerstone of prudent, successful investing. Without free cash flow, shareholders have more uncertainty of future returns.”
During the dot.com bubble the free cash flow yield on the S&P 500 technology sector was less than 2%. Currently that figure is 4.9%, a ratio of more than double. Furthermore, the 12 month forward P/E multiple in the dot.com bubble era was around 40, whereas now it is 19. “In both instances the valuations are half as expensive now as they were then.”
In addition to strong free cash flow, Smit sees strong, sustainable, organic growth potential in many technology stocks, notably large-cap counters. This is the second reason that Stonehage Fleming’s Global Best Ideas Equity Fund, which Smit manages, is nearly 30% invested in major cash generating technology companies.
In the current technology world, the focus is on big data and getting information as fast as possible to as many as possible all over the world through smart mobile devices. While Apple recently launched its new smartphone with a price tag of US$999, both India and China are producing models with comparable technology priced around US$100. This is making mobile technology and its many benefits accessible to more individuals than ever before, creating a sustainable growth path for well-managed companies that distribute their products through mobile technology.
In the technology sector the clear way to monitor whether a company remains to be relevant is to follow its organic revenue growth. If this doesn’t come through consistently, it implies that their technology is falling out of favour and the business may be in process of becoming extinct.
In terms of individual technology stocks, the fund has positions in, Visa, Tencent, Alphabet, Accenture and PayPal. “Tencent is one of the world’s most successful technology companies,” Smit says.
Using the metric of organic growth as a benchmark, Tencent reported in their last earnings announcement that their revenue line grew by over 50%. In addition, their compounded free cash flow growth over the past four years was over 33% per annum.
Smit says Tencent’s strength lies in having a number of different earnings drivers. Its social network business WeChat alone has over 900 million active users. Both a social media and messaging app, WeChat is also used for mobile e-commerce, payments, ordering food, taxis and more. Furthermore, Tencent has a stake in JD.com, China’s version of Amazon, and in Didi, the country’s version of Uber. “Importantly, we are also comfortable with Tencent’s overall corporate governance,” Smit says.
Turning to Visa, Smit says this technology giant supplies the platform on which all Visa transactions globally occur. Its growth potential is based on the fact that payments, whether consumer, corporate or institutional, occur more and more online. The mushrooming of e-commerce is adding further fuel to the company’s growth potential.
Alphabet is another outstanding business, Smit says. As the holding company of Google, Android and YouTube, it is also very active in AI, driverless cars and satellite communications; Alphabet’s free cash flow growth has exceeded 17% per annum over the last four years.
Recently, assets under management (AUM) in the Stonehage Fleming Global Best Ideas Equity Fund passed the US$650 million mark. The fund, which attracts investments from private, professional and institutional investors has returned 47.2%* over the last four years, compared to MSCI World All Countries Index of 39.0%.
Smit runs this concentrated, high conviction portfolio of 24 stocks that are chosen for their sustainable growth potential, strong management, strategic competitive edge and attractive valuation. The portfolio has very low turnover: over the past 12 months Gerrit has only sold two positions and initiated one.
In addition to the high weighting in technology stocks, other investments include some of the world’s best known companies such as Nestle, Estée Lauder and PepsiCo where there is confidence in the sustainability for indefinite growth rather than volatile cyclical growth.
How we use phones to avoid human contact
A recent study by Kaspersky Lab has found that 75% of people pick up their connected device to avoid conversing with another human being.
Connected devices are becoming essential to keeping people in contact with each other, but for many they are also a much-needed comfort blanket in a variety of social situations when they do not want to interact with others. A recent survey from Kaspersky Lab has confirmed this trend in behaviour after three-quarters of people (75%) admitted they use a device to pretend to be busy when they don’t want to talk to someone else, showing the importance of keeping connected devices protected under all circumstances.
Imagine you’ve arrived at a bar and you’re waiting for your date. The bar is busy, and people are chatting all around you. What do you do now? Strike up a conversation with someone you don’t know? Grab your phone from your pocket or handbag until your date arrives to keep yourself busy? Why talk to humans or even make eye-contact with someone else when you can stare at your connected device instead?
The truth is, our use of devices is making it much easier to avoid small talk or even be polite to those around us, and new Kaspersky Lab research has found that 72% of people use one when they do not know what to do in a social situation. They are also the ‘go-to’ distraction for people even when they aren’t trying to look busy or avoid someone’s eye. 46% of people admit to using a device just to kill time every day and 44% use it as a daily distraction.
In addition to just being a distraction, devices are also a lifeline to those who would rather not talk directly to another person in day-to-day situations, to complete essential tasks. In fact, nearly a third (31%) of people would prefer to carry out tasks such as ordering a taxi or finding directions to where they need to go via a website and an app, because they find it an easier experience than speaking with another person.
Whether they are helping us avoid direct contact or filling a void in our daily lives, our constant reliance on devices has become a cause for panic when they become unusable. A third (34%) of people worry that they will not be able to entertain themselves if they cannot access a connected device. 12% are even concerned that they won’t be able to pretend to be busy if their device is out of action.
Dmitry Aleshin, VP for Product Marketing, Kaspersky Lab said, “The reliance on connected devices is impacting us in more ways than we could have ever expected. There is no doubt that being connected gives us the freedom to make modern life easier, but devices are also vital to help people get through different and difficult social situations. No matter what your ‘connection crutch’ is, it is essential to make sure your device is online and available when you need it most.”
To ensure your device lifeline is always there and in top health – no matter what the reason or situation – Kaspersky Security Cloud keeps your connection safe and secure:
· I want to use my device while waiting for a friend – is it secure to access the bar’s Wi-Fi?
With Kaspersky Security Cloud, devices are protected against network threats, even if the user needs to use insecure public Wi-Fi hotspots. This is done through transferring data via an encrypted channel to ensure personal data safety, so users’ devices are protected on any connection.
· Oh no! I’m bored but my phone’s battery is getting low – what am I going to do?
Users can track their battery level thanks to a countdown of how many minutes are left until their device shuts down in the Kaspersky Security Cloud interface. There is also a wide-range of portable power supplies available to keep device batteries charged while on-the-go.
· I’ve lost my phone! How will I keep myself entertained now?
Should the unthinkable happen and you lose or have your phone stolen, Kaspersky Security Cloud can track and protect your device from data breaches, for complete peace of mind. Remote lock and locate features ensure your device remains secure until you are reunited.
Five key biometric facts
Due to their uniqueness, fingerprints are being used more and more to quickly identify and ensure the security of customers. CLAUDE LANGLEY, Regional Sales Manager, for Africa at HID Global Biometrics, outlines five facts about the technology.
How many times in a day are you expected to identify yourself? From when you arrive at work you are required to sign in, visiting your bank, receiving healthcare services… The list is endless. When a system knows who you are, you are able to do any number common, everyday activities. Your identity is unique and precious. It is also easily stolen and the target of many hackers across the globe. Technology is constantly evolving alongside the criminal element, always looking for ways to protect data and identity. One such solution happens to be biometrics and it is rapidly gaining traction in our increasingly complex modern world.
Reliable, secure and fundamentally YOU, unique biometric traits such as fingerprints are being used by banks, enterprises and consumers to verify identity. Biometric solutions offer significant identity protection because they use unique biological details to ensure an account is only accessed by the account holder, a door only opened by the owner. Here are five things that are little known about this technology…
- The uncut identity. Your fingerprint is unique to you. Nobody can use a copy of it to impersonate you. Good technology is capable of scanning down into the layers of the fingertip to differentiate unique elements of a person’s fingerprint, this data is then encrypted and used as a key to unlocking whichever physical or virtual door that the biometric system protects.
- The living proof. No, there is nothing to the stories of fingerprints being used without their owner’s knowledge or permission. Biometric solutions can use specific variables to determine if the finger used to access the system is that of a present, living person. A copy or a fake cannot be used to access a cutting-edge biometric solution.
- Easy and convenient. Queues and documents and paperwork may well be a thing of the past should biometrics take a firmer grip of government and banking systems. The process of registering is easy, and access to identity documents and records is yours alone.
- Security blanket. A thousand passwords and a hundred post-it notes stuck on walls and drawers. An excel file with a list of sites and applications and their corresponding passwords, all a thing of the past. Nobody needs to remember their password with biometrics, they only need to show up.
- Anywhere is cool. Schools, airports, networks, offices, homes, toilets, banks, libraries, governments, border controls, immigration services, call centres, hospitals and even clubs and pubs – knowing “who” matters and biometrics can quickly and conveniently confirm your identity where needed.