The way not only people, but things, connect with one another presents a world of investment opportunities. Portfolio manager Gerald Du Manoir shares this and two other themes that have captured his interest.
Matt Miller: Any big themes that you are looking at these days when you think about investments — kind of the internet of things, emerging markets? If you’re thinking of megatrends, are there things that you’re focused on or looking at?
Gerald Du Manoir: There are a couple of things that I find really interesting in the world today, phenomena that are going to continue to be strong in driving opportunities that are offered to us. And then there is also a really interesting dichotomy of valuation that [is] opening, which is quite interesting as well.
I’m sure you’ve heard about immuno-oncology: the ability of companies to identify the DNA of a cancer cell and, in fact, attack just that cancer cell, as opposed to being so blunt in addressing cancer. We have found quite a few companies that are really changing the way treatment of cancer is being addressed. Now sometimes they’re embedded in large corporations, and sometimes they’re stand-alone companies. And so we have found quite a few that we have confidence will be attractive.
A second area that looks interesting is, broadly defined, connectivity. Now obviously, [that’s] internet, social media, etc. But think about connectivity — not just among people, but among things, and the data that is being gathered, and also the treatment of data. What that means is obviously — as is often referred to — the FANGs [are] doing quite well — so Facebook; Apple; Netflix; and now Alphabet, formerly Google.
But it’s also the ancillary suppliers to them — and in particular, an area that is less focused on, and that’s semiconductor and semiconductor machinery providers. Now, in order to connect things together, or people with one another, we need an increasing amount of low-energy-consuming, high-performing chips. And smaller is better. There are a few companies that have become unavoidable in the kind of intellectual property that they’re bringing to the system. Now, one of them was ARM, and it’s been bought by SoftBank. It’s essentially a designer of circuits to the system.
But all the other companies that supply into the value chain continue to be very attractive, be it Taiwan Semiconductor or, even upstream from this, ASML, which is a lithography company that essentially imprints the circuits onto the wafers. That chain is less visible, and it’s probably not as common on CNBC —
Matt Miller: Right.
Gerald Du Manoir: — and all the normal sources of noise.
Matt Miller: But it’s the backbone to all these new —
Gerald Du Manoir: But it’s the backbone to all this system. And we’re just at the beginning.
So medical, connectivity . . . And then the third one, which is really interesting, is retail. Retail has really gone into this strange reinvention whereby bricks and mortar are really suffering. Anything that can be delivered in a very easy and accessible way — either by buying on your mobile or by buying on your computer — is really addressing directly, head on, the big retailers. But at the same time, the very super-prime bricks and mortar are actually doing quite well. So you have this bifurcation of a very large pool of bricks and mortar being at risk and a very small pool being hyper-valued.
Matt Miller: Is that the luxury brands or is it —
Gerald Du Manoir: Luxury brands but also some of the newer brands that are completely changing the way that they’re opening their retail models.
Matt Miller: Any examples that you can share?
Gerald Du Manoir: Well, I think Sephora, which is embedded into LVMH, is a great example of a retailer that completely reinvented the way cosmetic and personal care is being distributed. So the combination of high street positioning and format is really a very interesting proposition.
And then within that — not unlike what you saw with cellphones — retail in the emerging markets is leapfrogging the whole problem. So take an Alibaba. Take a MercadoLibre. These are internet companies, if you will, that are already offering retail experiences with even, in some cases, walk-in stores but without having the weight of the incumbency of their brick-and-mortar business.
So these are the three components of where I find a lot of opportunities.
Matt Miller: Fascinating.
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