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SAFAA 2020 – The industry in 3D – PANEL: The tech story : judging investment

Published 27 Aug 2020

SAFAA panel moderated by Vic Jokovic, CEO, Chi-X

Investment in the tech sector has been steadily rising for years and market volatility and COVID-19 brought yet more focus to bear on the sector. Clients want to invest and advisers are keen to get them involved, but want to know what 2020 market turmoil and COVID-19 means for the sector.

Where is there certainty in today’s markets?

The world has changed – it’s moved online, we are benefiting as users, but not as investors.

If we experience another decade of growth in the direction it is going, it will affect the quality of life and standard of living

The general (global) sentiment is uncertainty, and there’s no denying there is disruption ahead, how do we benefit from it, not suffer?

No one can predict the extent and direction of the pandemic nor its effective treatment or vaccine, what we do know is, it has made some lasting changes to the World and if we were to expect the worst, this only amplifies some of the mega trends that are worth considering in both the protection and generation of wealth for your clients.

  • The world moved online. Digital transformations that would take organisations years happened within weeks – it accelerated. The enduring mega trend is the next generation of ‘life online’ has occurred. We all adjusted to living, shopping, working and communicating online rapidly, why, because we had to. We have certainty that online enabled, global borderless businesses did earn their right to rally mid year and the trend will continue
  • We know with certainty that printing money has limits and consequences. We are witnessing the second mega trend – a failing monetary system and a growing sentiment from people questioning, ‘what is money?’.  This has generated momentum in digital assets and countries to progress Central bank digital currencies. The US and China are well advanced in this, China may be the first. We also have some certainty around how other nations will react when one of the biggest economies in the world transacts in a digital currency, we will all have to. We have certainty that investing in digital assets is now important to hedge against the current financial system

Biggest shift going on globally in technology and innovation? Shift from the “Internet of communication” to the “internet of value” (web3.0)

  • We are now facing the next evolution of the internet. We started in the 90’s with web 1.0, the birth of the internet, also known as the ‘internet of information’
  • Today, We are in the age technologist’s call web 2.0. This refers to the mega cap platforms like Google, Amazon, WeChat and Facebook etc.  This era of social networking & cloud computing will most definitely be known for its centralisation and marketing of our data. 
  • The next evolution on the horizon is Web 3.0 which many are calling “the Internet of value”. It will leverage technologies such as distributed ledgers and blockchain providing transparency and data decentralization. Superseding Web 2.0’s centralization, surveillance and exploitative advertising, we will own our data and decide who accesses it. Web 3.0 is “new infrastructure” enabling us to significantly reduce costs (mostly middlemen) and scale the “back-end” as well.

The evolution of money: Central Bank Digital Currencies, Libra and Bitcoin

  • The Libra foundation & Central Bank Digital Currencies main value proposition is to enable us to reduce risk in the current financial services system.
  • Todays financial system is dependent on banking intermediaries to provide a “trust layer” to control transactions with layers of regulation, compliance and cost. 
  • Digital money seeks to replace this banking intermediary role and provide a trust layer within transactions, without the need for banking intermediaries to provide authenticity assurance.

What is libra 2.0?

  • The announcement by Facebook to develop Libra in 2019, a Global Payment System based on blockchain technology is a prime example of a business transition from web 2.0 – web3.o. 
  • Every major Central Bank in the world is discussing the potential impact of Libra, given the billions of users across Facebook’s various platforms. 

How is libra 2.0 game-changing?

  • Nobody disagrees with the breathtaking innovation the solution provides (near instant, near free global money transfer). It was the privacy issues and the speed of implementation that shocked Governments, regulators and traditional financial institutions around the globe. 
  • Its likely to be China launching a CBDC, they are in a live trial now, followed by Riksbank also running a live system and potentially the US. WEF reports 40+ central banks are exploring digital currencies
  • The Libra financial infrastructure will enable an open, scalable global financial system to evolve over time. This will demonstrably lower the cost of providing financial services, providing people everywhere with access to safe and affordable financial services, so people everywhere can live better lives.

How do you position portfolios in a near zero return world?

  • Investing in equities has changed – there are clear winners and losers – now there are old world vs new world equities. There isn’t new criteria to rate them against – this was the reason we bought banks, but they just aren’t ticking the boxes any more – mega caps are. They are the new blue chips

How should you judge investment decisions in this rapidly evolving field?

Through 3 dimensions – today (the mega caps aka the new blue chips), Tomorrow (the next mega caps) and the future – the hedge to benefit from disruption not suffer from it.:

  • Today: Over the past decade, a select group of global technology companies have evolved to change the way we interact with each other on both a personal and business level. These technology leaders currently form the backbone of our portfolio – and our lifelines today such as Visa, Mastercard, Google, and Amazon, Alibaba and Tencent  (the new blue chips)
  • In tomorrow’s investments we look for decade-long global growth potential. Some of which are local Aussie businesses (Xero, Afterpay and Megaport), Interestingly these business models are often overlooked because their PE ratios fall outside of the excess returns on capital model, making them appear high but in reality their scalable global capacity is not rated and they are undervalued. 
  • The future dimension is a small but certain hedge against disruption, call it insurance if you like for the field of new business models the next iteration of the web and digital currencies will introduce

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