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The Fourth Industrial Revolution can benefit tech ETFs | ITEK | SKYY

With the 2019 Davos conference exploring the impact of the high-tech digital revolution, Anthony Ginsberg, founder of US-based institutional asset manager GinsGlobal Investment Management, gave a timely talk about the “fourth industrial revolution” that is fuelling the profits of large IT firms. This is good news for Ginsberg’s two IT-focused funds, the HAN-GINS Global Innovative Technology UCITS ETF (ITEK) and the HAN-GINS Cloud Technology ETF (SKYY), which invest in companies that benefit from this mega trend.

Ginsberg pointed to statistics that showed the dominance of some of the larger players in this market. For example, Netflix recently announced 8.8 million new subscribers[1] – only 1.5m are from the US – and the company streams content in close to 200 countries around the globe[2].

“Virtual reality, the cloud, cyber security – they are all linked by the internet. Companies like Netflix and Airbnb couldn’t have operated in the same way 10 years ago as it was too expensive and too slow to scale up as these companies have done recently.”

While last September saw a “major disruption” in how many of these tech companies are classified - the IT sector as defined by MSCI lost as much as 23% of its market cap overnight, with Ebay and Amazon moved into the consumer discretionary sectors and Facebook into the communications sector – there is still no doubt what is driving these companies’ profits.

And in particular, it is cloud technology. Ginsberg pointed out that 65% of Amazon’s quarterly earnings is coming from its Amazon Web Services, a massive percentage compared to its online shopping. And as cybercrime is the fastest growing crime in the US – Yahoo’s hack affected 3 billion users in December 2016 alone – corporate spending on cyber security has more than tripled in recent years. 

“We are very bullish on cloud technology, social media, and cyber security, which are driving huge revenues,” said Ginsberg, “while blockchain, genomics, or gene editing, and virtual reality are further out in terms of profitability. They do make up a smaller proportion of our ETFs.”

For example, Chinese social media platform Baidu is expected to grow from 665m to 1 billion users within the next year, and every 10 to 15 seconds one new user joins a social media platform, he added.

Other developments worth noting for investors are the converging of artificial intelligence and healthcare, robotics in places like Japan reducing manufacturing costs, as well as a focus on big data, which enables artificial intelligence to act in a more intelligent way, and Tesla launching electric cars costing just $35,000 in the US. 

If in doubt, follow the money - Ginsberg pointed to pharmaceutical giant Bristol-Myers Squibb paying $74bn to acquire biotechnology company Celgene as one example of where future trends are headed. 

[1] Netflix adds 8.8m subscribers, reveals viewing figures, January 2019 | https://www.screendaily.com/news/netflix-adds-88m-subscribers-reveals-viewing-figures/5135922.article

[2] How Netflix expanded to 190 countries in 7 years, October 2018 | https://hbr.org/2018/10/how-netflix-expanded-to-190-countries-in-7-years

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