Artificial intelligence will make all businesses more efficient in the future, says Janus Henderson – not just tech stocks – driving up productivity and adding a significant boost to global GDP. AI will be implemented at every stage of the production chain, from factory manufacturing and smart buildings to autonomous drivers for distribution, says Richard Clode manager of the Global Technology fund.
“Blue-collar jobs were replaced by machines in the industrial revolution,” says Clode. "Now white-collar jobs are being replaced by or robotic algorithms.” Just as the agricultural industry was disrupted by the advent of machinery, so chatbots are now replacing call centre workers.
Quoting a Business Insider report, he lists the roles that are most likely to be replaced by robots over the next 20 years as telemarketers, accountants, retail salesperson, estate agents, typists and commercial pilots.
However, this won’t mean people will be left unemployed – as the scaremongers like to threaten – we won’t all be replaced by robots. Instead Clode likens the shift to the impact of ATMs on bank tellers.
“Bank tellers were not replaced by ATMS,” he explains. “Instead their roles changed. Rather than counting and distributing money, which could now be done faster by a machine, bank tellers more value add jobs; such as selling you wealth management services or insurance – which is a more productive use of the employee’s time.”
So far, disruptive technologies have broadly impacted just two sectors; traditional media and retail. Next up Clode expects financial services, healthcare and transport to be impacted. He believes he key themes driving disruption are payment digitalisation, internet transformation, next generation infrastructure and artificial intelligence. But there will be victims of this transition – not all companies will survive the revolution.
“The trends are consistent, but the stocks can be subject to extreme volatility,” he warned. “The trick is to work out which are the long-term winners.”
He cited the two examples of Google (GOOGL) and 3D Systems (DDD) – both affected by investor hype since their IPOs, but only one has gone on to deliver consistently for shareholders. 3D Systems floated at $10 in 1988, but really came in investors’ attention in 2012 when 3D printing hit the headlines. Investor hype pushed the share price to $94 in January 2014, but it subsequently fell to $8.95 the following year, and now sits at $12.51.
Google's initial public offering took place in August 2004 at $85 per share. It has been a bumpy ride –but the stock is now worth $1,092 and has been as high as $1,291 this year.
Trade War Threatens Even the Rise of the Robots
The challenges facing the onward march of disruption? Donald Trump and President Xi Jinping’s trade war, and regulation.
Taking the latter first, Clode says that despite recent headline-grabbing breaches – such as the Facebook (FB) Cambridge Analytica scandal – he is less concerned about data threatening growth.
“I am feeling much more positive about the risk of data concerns, thanks the recent GDPR regulation in Europe. Consumers are realising they were never getting services such as Facebook (FB) and Google for free – you shared your data in exchange for targeted advertising,” he says. “We are activist investors, we were writing to Facebook a year ago about our data concerns.”
He adds that regulation is often slow to implement, giving companies time to adjust ahead of any restrictive laws.
Regarding the trade war, however he is more concerned: “Trump wants to disrupt China’s Made in 2025 strategic plan, which is very much focused on nurturing domestic technology companies. The trade war is my biggest concern right now. China plays a long-term game, they won’t be afraid to give up something short-term to win.”
Opportunities in Asian Autos
One area Clode is seeing exciting opportunities for growth is electric vehicles, and it is an area that his colleague Hamish Chamberlayne, head of socially responsible investing, is keen on too. Chamberlayne’s four-star rated Janus Henderson Global Sustainable Equity fund invests in Tesla (TSLA), although only a small weighting of 0.77%.
Chamberlayne is also keeping an eye on Chinese autos as a potential buy, saying: “I am excited about the electric car sector, and I believe China will be the world leader in time. The autos sector is currently dominated by the US and Japan but 50% of electric vehicle are sold in China.”
BYD Company (002594) is one of the leading Chinese electric vehicle manufacturers that could potentially tempt Chamberlayne, or NIO (NIO) which is US listed.
Clode says of Chinese equities: “I have been coming to Asia in 2004 and in that time I have met only three companies – one of which is unlisted – that has been any success. Those are Alibaba (BABA) and Tencent (00700). This has been due to the economy being less mature, and capital allocation problems. But China is ahead of the game when it comes to data, thanks to relaxed privacy laws. There are moral questions… but the tech is good. I do see myself buying into China over the long term.”
