AI is not the only game in town for global innovation investors

Artificial intelligence (AI) has exploded onto the scene in recent months, with the arrival of ChatGPT and other similar large language models (LLM).

As a consequence, money has started flooding into the market, as firms look to press ahead with their own initiatives and get first mover advantage. For example, Accenture, the Irish-American professional services giant specialising in IT and consulting, just announced a truly massive $3bn investment in AI “to accelerate clients’ reinvention”.

In practice this means Accenture is launching an expanded data and AI practice to offer new industry solutions and pre-built models that will help companies across 19 industries drive value – it is also doubling AI talent at the firm to 80,000 people through hiring, acquisitions and training.

AI isn’t new – it’s just got popular

While the world goes crazy for all things AI, some fund managers who invest in the global innovation space have been on the trend for a while, waiting for the world to catch up and move beyond.

“Investor sentiment is clearly white hot on artificial intelligence at the moment, but AI really isn’t that new,” says Guy Feld, manager of the IFSL Marlborough Global Innovation fund, “it’s just an evolved form of software automation, analysis and predictive insight, but ChatGPT is a milestone that has drawn a powerful spotlight onto this evolving technology”.

IFSL Marlborough Global Innovation is invested in a number of companies across different industries and geographies benefiting from the AI theme. For example, it holds a small company that leads the world in the AI-based detection of drivers’ illegal mobile phone usage and non-compliance with seatbelt laws.

Ian Mortimer, portfolio manager on the Guinness Global Innovators strategy, has also been watching, and investing in, the AI trend for a while. He breaks down stocks exposed to artificial intelligence as either ‘enablers’ of the technology, or ‘integrators’ that leverage their tech meaningfully within their businesses.

Enablers include companies commercialising AI on a large scale, like Microsoft, which has launched a suite of generative AI tools for developers, and Nvidia, which is designing chips powerful enough for AI use-cases.

Adobe and Salesforce can be thought of as integrators, implementing the technology within their products in order to improve their offerings.

Other innovation opportunities

However, both Ian and Guy take a far broader view of innovation, and the investment opportunities it can bring, than just AI.

For example, the Guinness Global Innovators strategy is also interested in healthcare, where new and ground-breaking treatments are being developed regularly. “Artificial Intelligence may have the ability to enhance and accelerate these developments, but the underlying resource and expertise is the core driver and facilitator,” says the fund’s manager.

Likewise IFSL Marlborough Global Innovation is invested in companies bringing fresh thinking to areas like water conservation and treatment, and molecular diagnostics, where scientists look at the unique genetic codes found in our cells to identify warning signs of diseases.

Its manager also has a play on the substantial capital going into upgrading electricity networks so they’re ready as we move from burning fossil fuels to much greater use of electricity from renewable sources such as wind and solar power.

Mark Hawtin, manager of the GAM Star Disruptive Growth fund, is another global manager investing more expansively than just AI as a source of innovation, and “believes the next 10 years will be characterised by the fourth digital wave – Digital 4.0”. 

Following the platform era that spawned companies like Google, Amazon, Uber and Meta, Martin sees this next wave as disrupting many traditional sectors like industrials, healthcare, transportation and financials, through the use of big data, connectivity, AI and the Internet of Things (IoT).

GAM Star Disruptive Growth is investing in what the manager views as digital 4.0 exposed companies. “Picks and shovels names in semiconductors and hardware, together with digital change consultants and next generation SaaS (Software as a service) businesses will all benefit from this wave,” he says.

Global funds have the advantage of being totally unconstrained by region, which makes them ideal for diversification and keeps the managers on their toes when it comes to where the next big opportunity will arise.

The CT Global Focus fund is not an innovation fund per se, but manager David Dudding, has also been looking at 10 year trends and hunting down the sources of potential returns from companies at the cutting edge of their business.

“Investment in decarbonisation, the ‘digitalisation’ of the economy – the two overlap – ageing populations and the rise of Asia,” are what he says he sees as the big growth areas coming down the road, and is investing his fund accordingly.

While AI is making all the headlines at the moment, it's worth remembering, as with other fast moving sectors of the past, not all AI companies will make billions (and some will only make losses). It may be pertinent to keep an eye on the burgeoning tech’s direction of travel, without putting all your eggs in one investment basket.

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The views expressed are those of the author and fund managers and do not constitute financial advice. Mention of specific securities is for illustration only and not a recommendation to buy or to sell.

Published on 19/06/2023