On Wednesday, we had our Future of AI and Healthcare Innovation event, with Marc Weiss, CIO of Open Field Capital, covering AI and more general technology and Marc Pentopoulos, CIO of Vista Point Capital, covering focusing on biotechnology and healthcare technology. If you were able to join us, we hope you enjoyed it as much as we enjoyed presenting it. If you were unable to join us, here is a quick summary of the proceedings, which we think is important.
Why Focus Here?
No matter the era, emerging technology has always been an important part of any portfolio. Back in 1900, railroads, the critical technology of the day, represented more than 60% of the total stock market in the U.S. Today, Artificial Intelligence (AI) and how it can affect a wide variety of industries, is the technology of the next 20 years. Why should you care so much? Because investing in technology reaps benefits. The chart below depicts the S&P 500 index fund (SPY) compared with NASDAQ Index (QQQ), which is heavily weighted toward technology and the MSCI ACWI Biotechnology Index, a global index of small and large cap healthcare technology companies. What immediately stands out is that no matter how well the S&P index has performed, these emerging technologies have far outperformed the S&P 500, albeit, with greater volatility of returns. Investing here you need to be ready for a bumpy ride, but hopefully one that is rewarding.
Why Not Just Buy the Market Leaders?
The reason is simple. Technology comes in waves and the leaders of one era rarely extend into the next era. Large existing businesses have complications when new technology arrives. Sometimes it’s a fear of cannibalizing existing business, sometimes it’s as simple as resting on their laurels. Whatever the case, the leaders tend rotate.
In the 1970’s, the IBM mainframe ruled and their technological lead seemed insurmountable. As the PC emerged, IBM’s influence waned, despite creating one of the first PCs. In the internet era, Cisco, Intel, and Sun Microsystems were dominant. In fact, as the tech bubble was about to burst, Cisco was highlighted as the one stock you simply had to own, but it is no longer a leader today. Intel was another company that seemingly had an insurmountable lead in chips, but today, that is gone.
Move ahead 10 years and mobile technology is becoming dominant, making Apple the smashing success that it is along with Google and social media companies. Today, the AI backbone is comprised of NVIDIA chips, robotics are becoming more prominent in manufacturing, along with electrification technologies. What is clear is that investing in leaders as they peak, is not an attractive strategy.
What comes tomorrow is up for discussion, but AI, with all the risks of abuse, is coming, like it or not. The positive side is that AI and quantum computing hold the promise of faster drug development with significantly higher success rates; the potential for substantial increase in productivity, which will be necessary to correct the debt imbalances of the U.S. No matter the industry, the ability to manage data will also be critical. These are areas where the new leaders will likely emerge.
As always, past results are not an assurance of future results, but we believe these managers have the experience and savvy to navigate these rapid technology changes and produce strong returns.
What We’re Reading
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The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.
The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.
All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.Artificial Intelligence, Biotech, biotechnology, emerging technology, Quantum Computing