For institutional investors looking for alpha, there’s one sector in particular where they can find it, said Jeremy Yeung, vice-president of portfolio management and portfolio manager at Signature Global Asset Management.
“Technology is an inefficient market, that’s where all the alpha is,” he noted, speaking at an event hosted by the CFA Society Toronto on Wednesday.
But in some ways, it’s no longer useful to think of technology as a sector, he said. “Technology is not a sector, it’s the centre of a new investment universe.”
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Technology has the ability to disrupt virtually all areas of business, from music to banking to retail, especially when harnessing the increasing availability of data, said Yeung. Across sectors, the use of technology will differentiate which enterprises have an edge that will push their growth going forward.
With 5G networks just around the corner, artificial intelligence in its initial stages and the world synced up through more internet-connected devices than ever before, companies that can adapt to — and use — new technologies quickly will win, he said.
As an example, Yeung referred to Walmart Inc., a long-standing retailer that has been analyzed by equity investors and was broadly expected to provide consistent levels of modest growth. This is an example of a legacy enterprise, which characterizes the broadly low-growth world in which investors are acting. Simply put, there’s no more alpha to squeeze out of a company like Walmart, he said, noting the disruption from an online retail giant like Amazon.com, Inc. has sent even mild growth expectations for Walmart down the drain.
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The growth that allowed Amazon to become the behemoth it is today didn’t happen overnight, said Yeung. Starting as an online bookseller, the company pivoted multiple times, opening up new channels of business. The commitment to finding new channels of expansion has made the company the darling of Wall Street, with a free pass to spend as much company capital as it likes without shareholders worrying about profitability, he said. “Amazon’s eating Walmart’s lunch.”