Vital challenges across all sectors
Steady falls in US interest rates between 2006 and 2016 encouraged investors to move into growth stocks in the quest for performance. Tech stocks offered the promise of disruption and investors piled in. Abundant liquidity from low interest rates helped fund their growth and the trend became self-sustaining. But current valuations are still stretched, and some are extremely high so sector turbulence could well persist. Nevertheless, there is more to big data than GAFA stocks. The big data sector is the 21st century’s new black gold for all sectors, even the most traditional.
Only a few years ago, data’s strategic importance was still largely underestimated by many economic players. But progress in computational power, machine learning and increasing connectivity has created an El Dorado with innumerable applications. The path traced by Google and Facebook more than ten years ago is now being trodden by thousands of start-ups. And nimbler players in established sectors like insurance and autos are close behind. Iconic successes like the victory of Google’s artificial intelligence against the world Game of Go champion; rapid progress in facial and vocal recognition techniques, and genuinely driverless cars have ended up convincing the most sceptical observers.
Yet, this data mass is worthless if it cannot be analysed, a situation that prevailed only a few years ago. Today, any company which knows how to harness these data can achieve competitive edge from using a broader range of parameters to make better decisions, lift current performance via cost optimisation/reduction and productivity gains and create new, better-targeted products. Investing in big data is now essential for companies which want to protect and grow their businesses and revolutionize their development models.
The first to take the plunge into the sea of data were, unsurprisingly, tech companies. Leading groups like IBM, Cisco and Microsoft have for several years been massively investing in data centres and dedicated IT analysis solutions. They then started to offer new solutions to huge sections of the economy.
But over and above the tech sector, data processing has also had an impact on more traditional sectors like banking and insurance, industrial maintenance, energy efficiency, autos and healthcare.
Building balanced portfolio
We believe big data has established itself as a strategic investment theme in its own right. In the minds of decision-makers who are revamping their businesses to take this paradigm shift into consideration, the theme has never been more pivotal. Investors have a better grasp of tech stocks, and particularly GAFA companies and so naturally they have invested massively in them. But we think it is easier to find investment opportunities in other segments like infrastructure providers, who enable access to these data, and data users, non-tech companies which exploit data to achieve a strategic advantage. Their average valuations are still more reasonable.
In our view, an investment vehicle focusing on this powerful theme with a disciplined, down-to-earth strategy should provide superior returns over time. Launched in August 2015, Edmond de Rothschild Fund Big Data gives investors exposure to companies which are directly impacted by the data revolution or capable of harnessing it to transform their business model. The fund has returned 42%1 since launch, outperforming the MSCI World (NR) index by close to 13%.
Selected companies are valued using a big data prism. To benefit from the theme, the fund adopts a dual approach. First, our transversal approach helps us build a portfolio that is not exclusively composed of tech stocks. At the same time, companies like data users, who have already transformed their approach to data in their main business to gain a competitive advantage, may represent up to 50% of the fund. But we also take a pragmatic approach by striving to focus on sector leaders, whether they be tech companies or not.
We believe the right approach is to take a selective view when valuing these companies and assessing the products and solutions they offer. Our stock-picking skills are the fund’s main source of added value.
1 Past performance and volatility is no guarantee of future performance and volatility which may change over time, and can be separately affected by fluctuating exchange rates. Performance data does not take into account the fees and charges received when issuing and redeeming units. Source: Edmond de Rothschild Asset Management (France). Returns for the A-EUR share of the Edmond de Rothschild Fund Global Data subfund from 31/08/2015 (inception date) to 31/10/2018. A-EUR share Performance: +41.95%, or an annualised +11.68%. MSCI World performance: +29.18%, or an annualised +8.41%.
November 2018. This document is issued by Edmond de Rothschild Asset Management (Suisse) S.A. This document is non-binding and its content is exclusively designed for information purposes. Any reproduction, alteration, disclosure or dissemination of this material in whole or in part without prior written consent from the Edmond de Rothschild Group is strictly prohibited. The information provided in this document should not be considered as an offer, an inducement, or solicitation to deal, by anyone in any jurisdiction where it would be unlawful or where the person providing it is not qualified to do so. It is not intended to constitute, and should not be construed as investment, legal, or tax advice, nor as a recommendation to buy, sell or continue to hold any investment. EdRAM shall incur no liability for any investment decisions based on this document. This document has not been reviewed or approved by any regulator in any jurisdiction. The regulation concerning marketing conditions of undertakings for collective investment (“UCIs” hereafter) varies from country to country. The UCIs presented herein may not be registered and/or authorised in your country. You should seek advice from your professional advisor if you are in doubt as to whether any of the UCIs mentioned might be suitable for your individual situation. This document is not intended for citizens or residents of the United States of America or "U.S. Persons" as defined by "Regulation S" under the U.S. Securities Act of 1933. No investment product presented herein is registered under the Securities Act of 1933 or any other United States regulation. Then, they cannot be offered or sold directly or indirectly in the United States of America, to or to the benefit of residents and citizens of the United States of America and to «U.S. Persons». The figures, comments, forward looking statements and elements provided in this document reflect the opinion of EdRAM on market trends based on economic data and information available as of today. They may no longer be relevant when investors read this document. In addition, EdRAM shall assume no liability for the quality or accuracy of information / economic data provided by third parties. Any investment involves specific risks. We recommend investors to ensure the suitability and/or appropriateness of any investment to its individual situation, using appropriate independent advice, where necessary. Furthermore, investors must read the key investor information document (KIID) or any other legal documentation requested by local regulation, that is provided to them before any subscription and available at www.edmond-de-rothschild.com under the “Fund Center” section, or upon request free of charge. Past performance and past volatility are not reliable indicators for future performance and future volatility. Performance may vary over time and be independently affected by, inter alia, changes in exchange rates. Performance data does not include commissions and costs incurred on subscriptions and redemptions of units or shares of the UCI. « Edmond de Rothschild Asset Management » or « EdRAM » refers to the Asset Management division of the Edmond de Rothschild Group. In addition, it is the commercial name of the asset management entities (including branches and subsidiaries) of the Edmond de Rothschild Group.
Edmond de Rothschild Fund Big Data is organized under the laws of Luxembourg, and has been approved for distribution in or from Switzerland by the Swiss Financial Market Supervisory Authority (« FINMA ») to non-qualified investors. The Prospectus, the annual and interim reports, KIIDs, articles of association can be obtained, free of charge upon request, from the Representative or from the following website: http://funds.edram.com/.
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