Sign up to our newsletter
August 2016
Important Information:
This webinar contains information specifically intended for institutional clients, asset consultants, advisers, platforms and researchers, who are professional investors and wholesale clients (as defined in the Corporations Act 2001).
I confirm that I am a professional or wholesale investor as defined by the Corporations Act 2001 and wish to proceed.
Companies like Apple, Amazon, Facebook, Google, Linkedin, Netflix, Uber and Tesla are transforming existing markets and disrupting the incumbents via technologies that introduce simplicity, convenience, accessibility and affordability.
At a time when passive investing via indexes is in vogue because markets have been volatile and hard to rationalise since the global financial crisis and the massive monetary policy stimulus that followed, investors risk missing out on performance of disrupters or risk suffering losses on investments in industries that bear the brunt of change, says Bell Asset Management chief investment officer Ned Bell.
“I think passive investing is dangerous,” Bell says. “You might be reducing some cost, but it doesn’t mean you’re reducing this kind of risk from your portfolio.
“When you think about your exposure — whether it’s passive or not — it’s something you have to sit up and take notice of because it’s only going to intensify. I can’t remember a time in my career when there’s been this sheer magnitude of these companies, in terms of their size and penetration.”
On his estimates, a passive investor, equally weighted to domestic and offshore equities, would have about 9 per cent of their portfolio that’s vulnerable to innovative disruption.
Australia has some disrupters such as Domino’s, Aconex, REA, carsales.com, Seek and OzForex, but most are looking expensive. Moreover, the biggest and most powerful disrupters tend to be listed offshore, and a number of Australian companies will be on the receiving end of disruptive innovation in the years ahead.
Many household names like Woolworths, Wesfarmers, Westfield, Scentre Group, JB Hi-Fi, Flight Centre, Harvey Norman, Super Retail Group, Myer, Nine Entertainment and Ten are in the firing line from disruptive innovators, Bell says.
And as much as some of the global giants aren’t generating a lot of profit and are trading on huge price-to-earnings multiples — 54 times in the case of Amazon — they are well funded and have a clear licence from their largest shareholders to disrupt.
Of course, how to position for disruption is the key to navigating the potential risks and opportunities and while the “FANG” stocks (Facebook, Amazon, Netflix and Google) have been all the rage, Bell favours Apple and Google as examples of profitable disrupters.
“From our perspective, we have positioned ourselves in companies like Apple and Google because they are very profitable disrupters that are not trading on big PE ratio,” he says.
Bell also likes companies such as Visa and Mastercard because they are huge beneficiaries of the pick-up in e-commerce and the cashless economy associated with disruptive technologies.
“They are a fantastic way of playing this theme because you’re getting the profitability you want, without having to invest in companies that are taking all the risk by investing in the infrastructure that goes alongside disruptive innovation.”
“If you look at Amazon, it’s actually just a big logistics company and they are very good at it, but their distribution centres are unbelievably costly and they spend just about everything they earn.”
In his view, it’s only a matter of time before Amazon establishes distribution centres in Australia, posing a major competitive threat to the domestic retail sector.
Apart from the importance of actively picking companies to invest in — rather than passively investing in indexes — an analysis of disruptive trends also highlights the importance of having a global equity allocation, rather than being stubbornly overweight Australian equities.
“At the end of the day, the Aussie market doesn’t have a lot of exposure to these profitable disrupters,” Bell says. “You could argue that REA and a handful of others are on the right side of that, but they are incredibly expensive, and that comes with valuation risk.
“So if you believe that this disruption idea will have a big impact on many of the traditional companies and you want to position yourself on an active basis, you have to have global exposure.”
Companies like Apple, Amazon, Facebook, Google, Linkedin, Netflix, Uber and Tesla are transforming existing markets and disrupting the incumbents via technologies that introduce simplicity, convenience, accessibility and affordability.
At a time when passive investing via indexes is in vogue because markets have been volatile and hard to rationalise since the global financial crisis and the massive monetary policy stimulus that followed, investors risk missing out on performance of disrupters or risk suffering losses on investments in industries that bear the brunt of change, says Bell Asset Management chief investment officer Ned Bell.
“I think passive investing is dangerous,” Bell says. “You might be reducing some cost, but it doesn’t mean you’re reducing this kind of risk from your portfolio.
“When you think about your exposure — whether it’s passive or not — it’s something you have to sit up and take notice of because it’s only going to intensify. I can’t remember a time in my career when there’s been this sheer magnitude of these companies, in terms of their size and penetration.”
On his estimates, a passive investor, equally weighted to domestic and offshore equities, would have about 9 per cent of their portfolio that’s vulnerable to innovative disruption.
Australia has some disrupters such as Domino’s, Aconex, REA, carsales.com, Seek and OzForex, but most are looking expensive. Moreover, the biggest and most powerful disrupters tend to be listed offshore, and a number of Australian companies will be on the receiving end of disruptive innovation in the years ahead.
Many household names like Woolworths, Wesfarmers, Westfield, Scentre Group, JB Hi-Fi, Flight Centre, Harvey Norman, Super Retail Group, Myer, Nine Entertainment and Ten are in the firing line from disruptive innovators, Bell says.
And as much as some of the global giants aren’t generating a lot of profit and are trading on huge price-to-earnings multiples — 54 times in the case of Amazon — they are well funded and have a clear licence from their largest shareholders to disrupt.
Of course, how to position for disruption is the key to navigating the potential risks and opportunities and while the “FANG” stocks (Facebook, Amazon, Netflix and Google) have been all the rage, Bell favours Apple and Google as examples of profitable disrupters.
“From our perspective, we have positioned ourselves in companies like Apple and Google because they are very profitable disrupters that are not trading on big PE ratio,” he says.
Bell also likes companies such as Visa and Mastercard because they are huge beneficiaries of the pick-up in e-commerce and the cashless economy associated with disruptive technologies.
“They are a fantastic way of playing this theme because you’re getting the profitability you want, without having to invest in companies that are taking all the risk by investing in the infrastructure that goes alongside disruptive innovation.”
“If you look at Amazon, it’s actually just a big logistics company and they are very good at it, but their distribution centres are unbelievably costly and they spend just about everything they earn.”
In his view, it’s only a matter of time before Amazon establishes distribution centres in Australia, posing a major competitive threat to the domestic retail sector.
Apart from the importance of actively picking companies to invest in — rather than passively investing in indexes — an analysis of disruptive trends also highlights the importance of having a global equity allocation, rather than being stubbornly overweight Australian equities.
“At the end of the day, the Aussie market doesn’t have a lot of exposure to these profitable disrupters,” Bell says. “You could argue that REA and a handful of others are on the right side of that, but they are incredibly expensive, and that comes with valuation risk.
“So if you believe that this disruption idea will have a big impact on many of the traditional companies and you want to position yourself on an active basis, you have to have global exposure.”
