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 tech is keeping us young
Research by Lenovo revealed people who use tech feel, on average, 11 years younger.
Technology is making the world feel younger, healthier and more emotionally connected, reveals new research by Lenovo, suggesting a growing relationship between technological innovation and wellbeing.
The research, which surveyed over 15,000 individuals from around the globe, from the US, Mexico, Brazil, China, India, Japan, UK, Germany, France and Italy, not only found 40% of global respondents feel “a lot” or “somewhat” more youthful thanks to technology, but on average it made them feel younger by 11 years.
This rings most true in China, where 70% of Chinese respondents said technology made them feel more youthful, which could be perhaps due to technologies ability to build connections between generations, especially those who might have once felt disconnected from tech-savvy youngsters. For example, grandparents are now able to better communicate with their grandchildren via smart technology due to its growing ubiquity and ease of use.
The research suggests that this sentiment is felt world-over, across genders and ages. “To know how to operate newer technology makes me feel younger” one US woman, said. Another woman, from France, also stated, “Compared to the younger generation who are born with all these technologies, my adaptability makes me feel younger”. On the other side of the globe, one female respondent in India cited tech as making her feel like she “can do anything with it which any youngster can do,” and one Chinese male respondent said: “It helps me catch up with the times – not only gaining more knowledge, but also feel that I’m on-trend; I feel younger”.
The research generally revealed that many older generations think using technology helps them to connect better with younger people as well as feel livelier and more knowledgeable. This is especially evident when it comes to the role smart devices (from PCs, tablets to smart home assistants and more) play in terms of relationships with family and friends. When asked to compare technology today to those of 20 years ago for giving them the ability to feel connected to what is going on in the lives of the people they care about, 65 percent answered it’s “getting better”. While 75% also said technology is improving their ability to stay in touch with family and friends who live far away.
The global research also revealed that tech is helping people when it comes to mental health and wellbeing, offering emotional gains, particularly in parents. Over three-quarters (78%) of working parents stated the ever-connected nature of technology helps them feel more emotionally connected to their children, even when they are away from home. An even larger portion (83%) of working parents agreed that emerging technologies are making it easier for them to feel confident that their kids are safe and secure while they are at work.
Over two-thirds (67%) of respondents in the survey stated they were optimistic about the future of technology and the role tech can play in our lives and society, especially in wellbeing, with 67% believing devices are currently having a positive impact on the ability to improve their overall health. And that’s hardly surprising, considering 84% also said tech has empowered them to make improvements in their lives overall.
Take for instance how one respondent, a 51-year-old woman from the US, highlighted how science is using technology to do great things for amputees, and enabling those suffering from mental illness to better connect with people from all over the world. “I think that the medical breakthroughs we’ve had are a tremendous statement on how we can have a positive relationship with technology,” she said.
The recognition that tech is helping to improve the quality of life could also be a result of the time it tends to save people. Half of respondents across all markets (50%) feel their smart devices save them 30 minutes or more a day by helping them do something faster or more efficiently. Similarly, over half (57%) agreed smart devices, such as computers and smart home devices like smart displays and smart clocks, are making them more productive and efficient, the highest perceptions of which were seen in China at 82% and India at 81%.
In terms of personal health, 36% of respondents said smart devices have made it easier for them to access health care providers and make doctor’s appointments, and a further 39% of those under 60 years of age stated modern tech makes it easier for seniors to contact emergency services.
A 23-year-old woman from India, for example, expressed her belief that the technological advancement of medical science is helping people better fight diseases and potentially cure them. “Lives of people are better off nowadays because they know ways of curing such health hazards,” she said. “Through technology, increasing the life span of an individual is very much possible.”
Psychologist and founder of Digital Nutrition, Jocelyn Brewer, said: “Keeping up with advancements in technology can feel like a full-time job, but it can have positive impacts on people’s sense of themselves and their age. While older people are stereotyped as being techno-phobic or inept at staying on-trend, this research points to the fact that maintaining currency in the digital space helps people feel more youthful, more connected to young people and youth culture, which in turn is a social currency for feeling valued and a sense of belonging or in ‘the know’.
“It’s this tech knowledge that drives the perception of feeling younger, without having to revisit the angst of our adolescence!
“Staying connected to the people we care about is a wonderful feature of technology. And while it is no replacement for face-to-face connection, it is a valuable supplement to communication for those who might be geographically divided. Parents can manage a range of responsibilities and provide increasing appropriate autonomy to teenagers through a variety of communication tools, reminders and systems that can help take the struggle out of the daily juggle.”
Dilip Bhatia, Vice President of User and Customer Experience, Lenovo, said: “There is a growing relationship between innovation and wellbeing as smart technologies are not only helping people globally to stay more connected but aiding wellbeing in the form of compassion and empathy by building better connections between them.”
“Technology has a transformational ability to unite people across generations and walks of life around the world, with the potential to help them to live healthier and more fulfilling lives. At Lenovo, we passionately believe in creating smarter technology for all, which is why we focus on making our technology accessible, blending into the everyday lives for the benefit of more people.”
Advanced traffic management tech market hits $1bn
A new report from Navigant Research analyzes the ongoing transformation occurring in the traffic management industry, providing global market forecasts, segmented by region and technology, through 2028.
Advanced traffic management systems (ATMSs) such as adaptive traffic control (ATC) are enabling greater efficiencies in the traffic management ecosystem and can help integrate the expected growth in vehicle populations without overwhelming existing infrastructure. ATMSs are also enabling the development of smart intersections, which are emerging as one of the most important data-driven backbones needed for solving core city challenges. Click to tweet: According to a new report from Navigant Research, the global market for advanced traffic management will be worth more than $1.1 billion in 2019. Annual revenue is expected to grow to nearly $3.8 billion by 2028, representing a compound annual growth rate (CAGR) of 14.2%.
“The global advanced traffic management market is expected to more than triple by 2028,” says Ryan Citron, senior research analyst with Navigant Research. “Over the next 10 years, the market is expected to achieve gradual but accelerating growth as cities prioritize reducing traffic congestion and greenhouse gas emissions, make improvements in safety and livability, and integrate ATMSs with other smart city initiatives (e.g., smart street lighting).”
Currently, cities vary in their level of maturity in using ATMSs. Collecting traffic and vehicle detection data is often the first step toward advanced traffic management. Then, in-depth traffic analytics enable traffic managers to develop mitigation strategies and make operational improvements to existing traffic signal timing systems. In cities with mature traffic management solutions, ATC technologies enable traffic signals to adjust based on real-time traffic conditions, traffic data is sent from traffic lights to connected vehicles, inter-agency data sharing is on the rise, and transport platforms are used to manage mobility ecosystems.
The report, Advanced Traffic Management for Smart Cities, analyzes the ongoing transformation occurring in the traffic management industry. The study focuses on ATC, traffic analytics, artificial intelligence, vehicle-to-infrastructure communications, and vehicle detection technologies. Global market forecasts, segmented by region and technology, extend through 2028. This report also explores regional trends in advanced traffic management strategy and highlights city case studies where innovative projects are being deployed. An Executive Summary of the report is available for free download on the Navigant Research website.