Disruption offers significant returns

23-Aug-2017

By Sarah Kendell

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Investing in disruptive innovation, including blockchain technology, autonomous vehicles and artificial intelligence, could yield Australian investors returns that significantly outstripped traditional growth-focused equities portfolios, according to fund manager Ark Invest.

Addressing a media lunch hosted by Nikko Asset Management in Sydney yesterday, Ark Invest chief executive and chief investment officer Catherine Wood said the current pace of technological innovation was unprecedented in human history and offered strong investment potential to those with a longer time horizon.

“You have to go back to the late 1800s to experience multiple innovation platforms evolving at the same time. Back then there were three – the telephone, electricity and the internal combustion engine – and today we have five – genomic sequencing, energy storage, artificial intelligence, automation and blockchain,” Wood said.

“A lot of investors are sceptical, but blockchain in particular is today where the world wide web was in the early ‘90s, and we think the ramifications are going to be as profound, if not more profound, than the internet itself.”

She said the fund manager targeted a minimum 15 per cent annualised rate of return over five years for all its stock holdings across the five innovation themes.

“We don’t think of this as a tall order – it is a tall order in terms of the historic rates of return for equities, which tend to be in the 8 to 10 per cent range, but we are interested in 15 per cent because each of these innovation platforms is delivering outsize growth and really changing the way the world works,” she said.

“The correlation of our relative returns with traditional growth strategies is also very low because a lot of the stocks in our portfolio are either not in the indexes or are tiny parts of an index, but we believe they are going to become very large parts of the index.”

Nikko managing director Sam Hallinan said the group had recently taken a minority stake in the United States-based fund manager as it believed the innovative focus would provide Nikko with an edge in the local market.

“Australia has a hyper-competitive funds management space and if you are going to play in that environment, you need to recognise that you have to be different,” Hallinan said.

“So it has been great to bring this partnership to market with a firm who specialises in strategies around disruptive innovation.”

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