It is a reality that is getting closer and closer. In a very short time, most industries and companies will support their activity in technological processes. And it is that, if a few years ago the digital already resonated as a trend to stay, now it does so as a trend to stand out in any segment, due to its own transversality. And within these digital solutions that contribute to generate economic value, while improving the lives of citizens, connectivity and artificial intelligence (AI) are two of the main engines of the revolutionary changes that the era of the Internet is experiencing. digitization.
It is true that, with the pandemic, health or education seem to be the sectors that have run the most in the implementation of these technologies, but they are not the only ones. Financial services is also in the running. With the arrival of fintech, the sector, and mainly the asset management area, has already experienced a revolution in some of its core practices, which has only intensified in the last year. Today, a considerable proportion of asset management companies use AI and statistical models to run trading and investment platforms. “Until recently, only big tech invested in AI algorithms. However, right now, any asset management company that wants to stay in the game ten years from now is going to have to invest ”, he explains. Leonardo López, Country Head Iberia and Latam of ODDO BHF. “In our case, to offer the market a quality thematic product of a global nature, we have incorporated AI algorithms into the investment process of our funds that allow us to search for and identify companies that offer value, that grow and with good service in the market. subject that interests us ”, adds Leonardo López.
But incorporating AI through the investment process itself is not the only way to create value in asset management. The second option is to build an investment strategy on this topic, that is, invest in companies that are incorporating AI into their business model as a solid competitive advantage. At this point, three types of companies must be differentiated: those that benefit from this technology regardless of the sector in which they operate, those that provide the necessary infrastructure for the deployment of the technology (such as, for example, semiconductor manufacturers) and those that develop the technological applications themselves.
The investment opportunities in each and every one of them are endless, but the reality is that, for some time now, purely technology companies have lost some steam in the markets and in their portfolios. In a founded way? It depends on whether we look at it from a conjunctural or structural point of view … In any case, and although the vast majority of experts attribute rotations to factors that are more temporary than structural, it is also true that the term “overvaluation” in technological it is something that is alerting investors.
“The issue of valuations must be put into perspective. If we only see valuations from a nominal point of view, that is, measuring growth between now and the end of the year, the multiples that we see in the technology sector are probably exaggerated, but two points must be made. First, the consensus of analyst estimates is still behind, that is, the last quarterly results have been more than positive and this will probably cause analysts to revise their estimates upwards, so that valuations may still have certain tour. And, secondly, this is not something exclusive to the technology sector, that is, right now we are living in a moment in which we are emerging from one of the greatest depressions in recent times and there are distorted multiples in many of the sectors “, he details Jesús Ruiz, Director of Business Development for Spain and Portugal at Allianz Global Investors. Since Fidelity International, your Sales Director Óscar Esteban He further believes that this is temporary. “The technology sector, and the connectivity sector in particular, is taking a breather after an extraordinary 2020 and this year it is giving way to other companies that had been burdened and that right now it seems that they are recovering. But this is something temporary and the techs will return with force very soon, for the mere fact that technology is something that is needed in any type of company in any sector and in our daily lives ”.
Therefore, the key is, once again, on the investment horizon. Experts advocate looking to the long term, while isolating oneself from the noise of the market, avoiding thinking that all the plays thatThose that worked during the pandemic will stop working when we manage to end the coronavirus. “We believe that yes, the valuations are high, but we also believe that, not only for AI but for any subject or sector in which any structural change in the economy may impact, the investor needs a longer time horizon. : 5, 10 or 20 years. And in the end, if you expand the time horizon, current valuations play a much less important role in the investor’s balance sheet ”, he says. Adrià Besó, Head of Sales in Spain at WisdomTree. On the contrary, something that must be taken into account when balancing the portfolio and plays in favor of the technological ones are the financial numbers that are painted and that make foresee a vertiginous journey in the markets for them. “We clearly see multiples expansion supported by strong earnings growth. The results that we are seeing now from these companies are good and the perspectives are also maintained, mainly because the technological ones affect all generations and sectors ”, he says Nicolás Da Rosa, Institutional Sales International DPAM.
In any case, the market risk in the form of rotations exists, and it is something that the manager has to face. And you have to do it as in any other type of investment: knowing these companies thoroughly and with patience. In this sense, Patricia Justo, Senior Relationship Manager en T. Rowe Price, explains that “the fact that we are discounting very long-term flows, we are betting on innovative companies and some very new ones … means that in the end you have to have a depth of analysis and a very high knowledge of companies to be able to distinguish those that they are directing innovation towards success. In addition, we must not forget that investments in this type of company are not always seen in the short term, which becomes a challenge for the manager, having the ability to endure in the long term to distinguish the investments that really they are good of those that can be left by the way ”.
But this risk, that of the market, is not the only one to take into account. “Manufacturing problems, distribution problems because the supply chain has been interrupted during the Covid crisis, and others by the regulation of each country” are factors pointed out by DPAM. Dehumanization or the feeling of control is also something that is aimed at from the human-ethical point of view. “That Big Brother that we can sometimes sense watching us…”, says Leonardo López, who points out that this risk goes through a challenge: regulatory development. “In the case of AI, the EU has been a pioneer and the European Parliament has developed a regulatory proposal to try to address AI from two points of view: on the one hand, promoting economic development, but also guaranteeing the fundamental rights and security of the citizens ”, he details. A human component that is also necessary to resolve another risk, that of data bias. “To improve the algorithms we need a quality professional behind to adjust those applications; in the case of asset management, an expert manager who can feed the algorithm to make it truly intelligent and detect any error in the data or in the quality of the same ”, says the Sales Manager in Spain at WisdomTree.
But, despite all this, the balance is tilting sharply to one side, that of investments in technology and its endless opportunities. Where are they? If we look at regions, the first consideration to take into account is that it is a truly global phenomenon. Now, “at the moment we are witnessing a battle between two real titans: the United States, where the two main sources of capital (human and financial) are combined when investing, and China, whose government has declared that they intend to become in the leaders in AI on the horizon of 2025-2030 ”, explains Jesús Ruiz. A leadership duality that Adrià Besó also shares, but with a clarification. “Although we believe that China is very important for AI, the exposure we have to the country is very small, because most pure AI companies are private and not publicly traded.” Finally, although there is not much talk about Taiwan, “if we look at the semiconductor part, Taiwan is very powerful in this sector and a country to take into account”, he adds.