Better Late than Never
28/06/2021
Summary
With several tech giants growing at an even more remarkable pace. Investors who missed out on this rally may have deep regrets. But it’s better late than never. Looking ahead, AI and intelligent cities are expected to be the next growth drivers for the financial markets, so it’s time to seize the opportunity to get ready for the next big wave.
Key takeaways
Over the past few years, technology companies have been dominating the markets in terms of performance. They have also played a key role during the pandemic, which explains why they are highly sought after by investors
– Investors who have not ventured into this area need not regret, as Artificial Intelligence (AI) and intelligent cities are expected to be the next growth drivers for the financial markets.
A passive approach to investing in AI and intelligent cities, such as via indexes, may encounter various constraints. On the contrary, an active management approach may provides the flexibility to select innovative companies with higher growth potential.
Over the past few years, technology companies have dominated the financial markets. From June 2015 to the end of September 2020, the market capitalization of global technology equities expanded 122%, far outpacing the MSCI World Index’s 34%1, with several tech giants growing at an even more remarkable pace. Investors who missed out on this rally may have deep regrets. But it’s better late than never. Looking ahead, AI and intelligent cities are expected to be the next growth drivers for the financial markets, so it’s time to seize the opportunity to get ready for the next big wave.
The pandemic reveals an oportune time to invest in AI
Why is it the right time to invest in AI now? The pandemic provides the answer. The world is in the midst of its worst coronavirus pandemic in overa century. Fortunately, with the help of AI and 5G technology, we can better diagnose, monitor and track the infection. For instance, a Chinese internet company uses the ribonucleic acid (RNA) algorithm to greatly reduce the time to predict viral evolution. China also uses 5G robots to assist in measuring body temperature – this method is faster and safer than the use of handheld thermometers. Additionally, the use of disinfection robots to automate disinfection can reduce the relevant staff’s risk of infection.
Whether it is healthcare, remote work, online shopping, or home entertainment, there is no doubt that technology plays an important role in this pandemic. Companies that offer a wide range of “social distancing” solutions, such as video conferencing, collaborative software applications, cloud computing and mobile devices, are the winners of this new normal. As a result, in the first three quarters of 2020, the MSCI World IT Stock Index outperformed the global market in terms of 3-year annualized sales growth and 3-to-5-year annualized earnings per share (EPS). 2
In terms of technology maturity and level of adoption, AI is at a critical turning point. Nowadays, various sectors are investing in and deploying AI in their business models to differentiate from their peers, and grow their market share and profit margins. AI has been transforming our daily lives and all sectors of the economy at a sweeping speed. It brings vast possibilities that are just beginning to unfold.
A unique and differentiated investment approach
Technology funds which invest in the AI universe solely through the technology sector significantly limits investors’ access to other AI opportunities from elsewhere. In contrast, Allianz Global Artificial Intelligence is a growth oriented global equity fund without sector nor geographical limitations. This allows investors to tap into the vast investment opportunities of AI alongside the full value chain of AI Infrastructure, AI Applications and AI-Enabled Industries that apply AI in their products, solutions and business processes. This unique investment approach is reflected in the fund’s low overlap with the MSCI World Technology Sector of only 11.7%3
Our investment team maintains close ties and dialogues with the key players of AI in Silicon Valley and around the world, allowing us to access to the latest industry news and stay ahead with the rapidly developing AI space. On the other hand, while most technology equity strategies predominantly invest in large-cap stocks, we are not bound by this framework. We actively select innovative companies across the spectrum of large-, mid-, and small-cap companies to capture the next wave of innovation with a diversified portfolio.
Allianz Global Artificial Intelligence further focuses on companies related to the development of smart cities and connected communities, including future vehicles, smart factories, smart homes, 5G devices, clean energy, safety and security, and smart buildings, to capture future structural growth opportunities ahead of others.
All in all, AI and intelligent cities are cutting-edge investment concepts that require an active and flexible management approach to identify innovative companies with higher growth potential, combined with an experienced investment team, in-depth Grassroots® Research, and environment, social and governance (ESG) factors for better risk management.
1Source: AllianzGI, FactSet; as of 30 September 2020. June 2015 = 100. The global technology stocks’ market capitalization is represented by the MSCI World Information Technology Index. Performance of the strategy is not guaranteed of future returns and losses remain possible. Past performance or any prediction, projection or forecast, is not indicative of future performance.
2Source: AllianzGI, FactSet; as of 30 September 2020. The global market is represented by MSCI World Index. Past performance or any prediction, projection or forecast, is not indicative of future performance.
3Source: AllianzGI / IDS GmbH / Morningstar. As of 30 April 2020.
2Source: AllianzGI, FactSet; as of 30 September 2020. The global market is represented by MSCI World Index. Past performance or any prediction, projection or forecast, is not indicative of future performance.
3Source: AllianzGI / IDS GmbH / Morningstar. As of 30 April 2020.
Grassroots® Research is a division of Allianz Global Investors that commissions investigative market research for asset-management professionals. Research data used to generate Grassroots® Research reports are received from independent, third-party contractors who supply research that, as far as permissible by subject to applicable laws and regulations, may be paid for by commissions generated by trades executed on behalf of clients. Information herein is based on sources we believe to be accurate and reliable as at the date it was made. We reserve the right to revise any information herein at any time without notice.
