Disruption. The speed of innovation in the economy and society is increasing dramatically. The Lerbach Round Table analyses the technology boom and shows how investors can benefit from it.
"The start-up ADA Health has developed an app that checks for disease symptoms," says Kai-Arne Jordan of VC investor Cumberland. "It's just as easy to use as if 120 specialists were simultaneously taking an anamnesis and clarifying over 1000 diseases - while a normal family doctor knows only 50 to 60 disease patterns."
Welcome to the new digital world. Drones will soon be delivering goods on their own. Robots teach themselves their activities in production. Precise and targeted interventions in the genetic material of plants, animals and humans are revolutionising agriculture and medicine. And digital health is fundamentally changing the healthcare system.
The driver of all these developments will be data. "According to a Merrill Lynch study, we only use one percent of all data available worldwide. By 2025 the figure should be 37 percent. And the amount of data stored will multiply in parallel," says Ralf Mielke of Bank Julius Baer. "We will therefore experience technological advances that we can hardly imagine today," assumes Jörg Rahn of Wirtgen Invest. The consequence for investors is crystal clear: "In a world in which growth rates are generally declining, investors must be overweighted where growth prevails. And that is clearly the technology sector," says Michael Winkler, St. Gallen National Bank.
So where do investors find the next Amazon, Alphabet, Microsoft or Apple?
"That's extremely difficult," Christian Jasperneite, Warburg Bank, points out: "Especially when it comes to disruption, it's hard to see where the next breakthrough will come from. If you want to find disruptive companies, you have to work with new approaches. We took a closer look at analysts' estimates for key balance sheet figures. And we have indeed discovered certain patterns that are typical of disruptive developments. The swarm intelligence among analysts can thus be used to recognize where something is going on. That's a good hint to take a closer look."
"Stephan Jäggle from the MSR Family Office explains, "Five years ago we analyzed a fund that had experts without capital market experience in its team. A so-called disruptive manager in the team deals with the question of which companies and sectors will still be needed in five years' time and thus assists the fund manager, who analyses the companies according to classic valuation ratios. I find that exciting - combining capital market expertise with specialist knowledge."
"But it is important to be careful," warns Jasperneite, "when the technical experts in the committees have the last word on the investment, it becomes risky. Because they usually find it difficult to assess whether the technology under consideration is also of entrepreneurial relevance. Sometimes the sales share is too small, the time is not yet ripe for a successful business model or the positive prospects are already priced into the current share price".
As fascinating as the hope may be of being invested in the next multi-billion dollar company in an early phase, the professionals recommend that this be regarded as the cream on the technology cake. "The question is always whether the small companies can actually implement the good ideas economically successfully. Experience has shown that a lot of companies fail because of this," explains Ulrich Voss, Tresono Family Office, "it's not for nothing that the idea of first mover advantage is accompanied by the saying: "The second mouse gets the cheese".
First of all, it is important for investors to build up a basic investment in this area. "The easiest way to do this is to invest passively via ETFs on various technology indices", explains Michael Winkler, "those companies that are successful will grow strongly and gain more and more weight in the indices. Investors will be automatically and relatively inexpensively involved with the winners. "I would then immediately invest in the respective industry leaders", adds Ralf Mielke and explains: "The highest added value is actually realized at the beginning. The big companies have capital, know-how and customers. They can judge what works and are able to monetise new ideas over their existing structures. That's why they buy up any good idea for (almost) any price. Those who invest in the market leaders also indirectly have a foot in the small, disruptive companies - but without the total risk of failure."
"The international approach is particularly important," explains Jäggle, "in Europe the share of technology stocks in the stock markets is very low, while on Wall Street, in China and in Southeast Asia it accounts for between 25 and 30 percent of market capitalization. Especially the Chinese think much more in quantum leaps. That's where the music plays." "We cannot implement all data-based technologies in Europe because of data protection regulations. In China, for example, individualized product placements are possible in streamed films with the option of clicking on objects and ordering directly. We have completely lost touch," Voss nods.
"And not only there," notes Jasperneite: "We calculate a disruption score for 1800 companies worldwide. In the lower quarter there are currently a lot of German companies. That's very alarming."
"In individual cases, however, this can also be an opportunity," reflects Jörg Rahn: "In the future, there will be managers in the private equity sector who specialize in transferring the advantages of digitization to established companies. If they manage to change these companies to become users of the new technologies, there will certainly be a lot of money to be made. But this transformation will probably only work in private companies. That's why private equity is an intelligent addition to invest in the technology theme."
Of course, there could also be a small amount of venture capital. "Clients who invest ten percent of their assets in private equity have around one to two percent in venture capital funds," says Jäggle, adjusting relations accordingly.
"To be successful there, however, you need a very good network. This is the only way for investors to gain access to the best US and Israeli companies," Voss makes clear and concludes: "As a rule, the route via a VC fund of funds would therefore be the more promising approach than direct investment.
"Kai-Arne Jordan suspects that "the trend of the future is to make the private capital market accessible via blockchain technologies. In Liechtenstein and Switzerland, changes are already possible in company law for the issuance of so-called 'security tokens' as a replacement for shares.
In three to five years, each individual will be able to participate in private companies as easily as he would buy shares on the stock exchange today. "That could then - perhaps just in time - provide the urgently needed innovation boost in Europe," Jordan makes clear and concludes: "We must learn something new. Investors from Silicon Valley are not asking their start-ups for returns. There's only one thing at stake - 'let us know if you need more capital to grow. We simply don't have that attitude. But if we don't massively increase our commitment, we'll be overrun by China and the US."
Plants for the time of techceleration.
The editors of private wealth have identified investments that fit in with a continuing technology boom. These are ideas for talking to your investment roaster, not investment recommendations.
// Shares: Alibaba, Alphabet, Amazon, Apple, Baidu, Booking.com, Facebook, Microsoft, Paypal, Prosus, Salesforce, SAP, Tencent
// Active funds: AXA Framlington Digital Economy (LU1684370999), DNB Technology Fund (LU1376267727), Medical BioHealth Fund (LU119891520), Morgan Stanley Global Opportunities (LU0552385295), Pictet Robotics (LU1279334210), Polar Capital Global Technology Fund (IE00B433M743), Robeco Global FinTech Equities (LU1700711077)
// ETFs: Amundi STOXX Global AI (LU1861132840), ComStage STOXX Europe 600 Technology (EU0009658939), iShares Nasdaq 100 (DE000A0F5UF5), iShares Automation & Robotics (IE00BYZK4552), iShares Digital Security (IE00BG0J4C88)
// Private equity funds and VC funds: EQT Partners AB, Industry Ventures, Lakestar, Isomercapital
Authors: Yvonne Döbler, Gerd Hübner, Klaus Meitinger