NoFAANGS– thelesstroddentechnologytrail

JOHambroCapitalManagement– AnnualUKInvestorDay2018

MarkCostarSeniorFundManager

VinceRiversSeniorFundManager

RuthNashSeniorFundManager

AledSmithInvestmentDirector

Technology in unexpected places

Mark Costar

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The Paperless Office: Early 1990s

4

Costar’s desk: 2018

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The fallacy of the compelling narrative

• The Paperless Office

› Paper consumption per office employee is UP 50% over the last two decades

› Several of the constituent sector companies taken over in subsequent years

• The TMT bubble

› Widely derided as poster child of irrationality and value destruction

› But was it?

› “Everything we said about the internet is happening”

› Ecommerce estimates were actually too low not too high

› Basket of stocks would have made you money

› Huge value creation in the platform companies

• Lessons from Bitcoin for Blockchain?

• I HAVE ABSOLUTELY NO IDEA!

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Technology in unexpected places (1): Oil

• Assets are typically in high cost, remote & difficult locations

• Virtual unmanned platforms, autonomous tech & centralised command centres are driving massive efficiency improvements

• Deep data lakes can drive extraordinary insights

• Algorithms that can ‘find’ oil

• Depletion rate improvement: massive impact on DCFs if sustainable

• Short cycle loop automation just starting, long cycle to come

• A notoriously inflexible asset:

• Sensors, in build cellular and data are transformative

• Deployment drives productivity, releases capital and optimises footprint: ROI = £££

• Driving structural growth in flexible working

• Long term: a dramatic impact on how buildings are used and where they are located

Technology in unexpected places (2): Real Estate

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› Average desk just 50% utilised

› Average meeting room 27% utilised

Technology in unexpected places (3): Compliance

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• A roaring bull market:

• Huge inefficiency:

• Data integrity platforms bring scale, accuracy and huge ROI

• Machine learning surveillance: pre-empts problems, reduces risk

• A massive automation opportunity

› Average cost of compliance has more than doubled

› Only 42+ pieces of new legislation post MIFID II!

› 80% of reconciliations are manual/spreadsheet driven

› Volumes of information exploding but systems don’t talk to each other

Technology in an ageing society

Ruth Nash

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Countdown to extinction

Source: Hiroshi Yoshida, Masahiro Ishigaki, Mail Research Group Graduate School of Economics and Management, Tohoku University (version 2017).http://mega.econ.tohoku.ac.jp/Children/Children2017/index_en_2017.jsp*“Child” in this clock is a person less than 15 years old.

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The robots are coming!

“Robots persuade Japanese manufacturers to bring production home”Casio calculates that 'Made in Japan' is possible at Thai-level costsNikkei, Feb 2018

“Rice-serving robot dishes up sales”A fast and efficient machine helps out with Japan's labor shortageNikkei, Mar 2018.

“Japan theme park to replace a third of staff with robots”Operator of 'weird' robot hotels goes full in for automationNikkei, Mar 2018.

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Three major robotics ETFs – total assets ($ millions)

Robots buying robots

Source: Bloomberg as at 21 September 2018.

0

1000

2000

3000

4000

5000

6000

7000

8000RBOT LN (Japan weight 27%)

ROBO US (Japan weight 24%)

BOTZ US (Japan weight 42%)

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Number of installed robots per 100 employees in manufacturing industry in 2016

Automation is transforming manufacturing

Source: International Federation of Robotics as at 31 December 2016.

0

1

2

3

4

5

6

7

average

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Japanese market share in key technologies (%)

Leading the world in materials & components

Source: Industrial Revitalisation Division, Economic and Industrial Policy Bureau, Future Vision towards 2030s – May 2017.

0

20

40

60

80

100

120

15

Multifactor productivity growth, total economy, percentage change at annual rate

Japan is overcoming its demographic challenge

Source: OECD Productivity Statistics (database), February 2018.

-1

0

1

2

Germany Japan Canada France United States United Kingdom Italy

1995-2016 2001-2007 2010-2016

AI: Hype or Reality

Vince Rivers

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Artificial Intelligence – hype and reality overview

Look past the hype and search for the reality

• One of the most talked about themes in information technology

• While there is significant long-term potential, near-term applications are very limited

› Despite increasing air time on quarterly earnings calls, revenue generated from AI like deployments remains very small

• Key question: if actual investment in AI is over hyped today, then where is the money going?

› Look for tech in unexpected places – oil, real estate

› Less hyped tech in expected places – robots, analytics

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What is artificial intelligence – why not ask the experts?

Look past the hype and search for the reality

Yes, it’s a real book and it’s available on

Amazon!

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Artificial intelligence – no simple definition

Look past the hype and search for the reality

• Strong AI or True AI: Sentient machine that can think for itself – i.e. thinks like a human

• While this was popularised in several movies from the 1980s, such as ‘The Terminator’ and ‘Wargames’ – in reality we are nowhere near deployment

• Machine learning: a branch of AI which employs a method of data analysis that automates analytical model building; increasingly being deployed today

• IBM AI: anything they claim Watson can do in their TV ads

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Artificial intelligence – current usage today?

Look past the hype and search for the reality

• The reality: › True AI – is years away from any meaningful deployment

› What are companies doing when they reference AI:› Early success: teaching machines to recognise patterns and provide answers

› Second use case

› BUT – significant investment will yield technical improvements over time › In the long term, we need to follow the technology to determine winners and losers over time

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Artificial intelligence – why so hyped?

Look past the hype and search for the reality

• The source of hype who started the conversation?

› Large tech companies with declining revenue – IBM

› Start-ups looking for financing

› Financial news – CNBC/Bloomberg driving ratings

› Wall Street analysts

• Now everyone talks about it! AI was referenced on almost every earnings call that I listened to last quarter

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Artificial intelligence – the potential long-term impact is significant

Look past the hype and search for the reality

We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten.

Don’t let yourself be lulled into inaction

“”Bill Gates, 1995

Q&A

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