Big Data isn't just about GAFA

Persbericht - 13-11-2018

In short
  • Tech stock valuations are still stretched
  • Big data’s value creation goes beyond the sector alone
  • Achieving competitive edge can benefit all economic segments

Leading tech stocks have been through a choppy period in recent weeks due to profit taking. (English version)

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 past volatility are not reliable indicators for future performance and future volatility. 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%.

Principal investment risks
The fund is rated 6 on a scale of 7, a high risk/return fund profile which reflects its ability to be up to 100% exposed to equity markets. The risks described below are not exhaustive: it is the responsibility of investors to analyse each investment’s risk and to come to their own opinion. Risk of capital loss: the fund does not guarantee or protect the capital invested; investors may therefore not get back the full amount of their initial capital invested even if they hold their units for the recommended investment period. Equity risk: share prices may move in line with factors specific to the issuing company but they may also react to external political and economic factors. Risk from investing in small and mid caps: these stocks have smaller free floats. Market moves are consequently more pronounced both on the upside and the downside and faster than with large cap stocks. The Subfund’s net asset value may as a result see faster and wider swings. Exchange rate risk: the capital may be exposed to foreign exchange risk when the securities or investments it is composed of are denominated in a currency other than that of the SICAV. Risk of concentration: the investments in certain specific sectors of the economy can have negative consequences in case of devaluation of the concerned sectors. 
 
November 2018. This document is issued by Edmond de Rothschild Asset Management (France). 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 a 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. 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) and/or any other legal documentation requested by local regulation, that are provided before any subscription and available at www.edmond-de-rothschild.com under the “Fund Center” section, or upon request free of charge. « Edmond de Rothschild Asset Management » or « EdRAM » refers to the Asset Management division of the Edmond de Rothschild Group.
The information about the companies cannot be assimilated to an opinion of Edmond de Rothschild Asset Management (France) on the expected evolution of the securities and on the foreseeable evolution of the price of the financial instruments they issue. This information cannot be interpreted as a recommendation to buy or sell such securities. 
 
GLOBAL DISTRIBUTOR
EDMOND DE ROTHSCHILD ASSET MANAGEMENT (FRANCE)
47, rue du Faubourg Saint-Honoré, 75401 Paris Cedex 08
Limited company with capital of EUR 11.033.769
Numéro d’agrément AMF GP 04000015 - 332.652.536 R.C.S. Paris
 
MANAGEMENT COMPANY
EDMOND DE ROTHSCHILD ASSET MANAGEMENT (LUXEMBOURG)
20, Boulevard Emmanuel Servais, L – 2535 Luxembourg
 
ASSET MANAGER BY DELEGATION
EDMOND DE ROTHSCHILD ASSET MANAGEMENT (FRANCE)
47, rue du Faubourg Saint-Honoré
75401 Paris Cedex 08
Limited company with capital of EUR 11.033.769
Numéro d’agrément AMF GP 04000015
332.652.536 R.C.S. Paris

Elément complémentaire