- Matt Moberg’s DynaTech Fund has beaten 95% of its category peers over the past five years.
- It looks for innovation leaders with superior management that benefit from new industry conditions.
- He laid out four trends he sees shaping today’s economy that are rich investment backdrops.
- Visit the Business section of Insider for more stories.
There is no doubt that COVID-19 brought a lot of loss to the world. However, at the same time, it helped accelerate innovation across several industries as it forced businesses and individuals to adapt to more constricted environments than they were accustomed to.
Decades-long digital disruptions took place in just months with the development of innovative solutions such as voice products and cloud software that supported business activity, teleworking and learning from home.
But even before COVID sparked the acceleration in innovation, Matt Moberg, a portfolio manager with Franklin Templeton’s Equity Group, had been already investing in this phenomenon for more than fifteen years now.
His Franklin DynaTech Fund returned 57.68% last year, beating the S&P 500’s and Russell 1000 Growth’s 18.40% and 38.49% gains, respectively. The fund invests mostly in names that are innovation leaders with superior management, those that benefit from new industry conditions and use new technologies to their advantage.
“One thing we do believe is that innovation, from an investing standpoint, is one of the most misunderstood parts of the market,” Moberg told Insider on Monday, adding that it demands active management and can be accessed through thematic ETFs.
The reason is that the market often misestimates a company’s durability of growth or even the pace at which growth can expand. Further to that, even some of the companies that he covers are viewed as expensive on a 12-month financial performance basis, he said.
And throughout time, there have been people who turned around on names that appeared to be expensive but surprisingly had long-term potential.
For example, in 2015 Netflix appeared expensive as its stock had risen more than 500% in just 5 years. Back then, it was trading at around $115.81 per share; now it’s at around $506 and the number of paid subscribers has more than doubled, although it has continued burning through cash.
But what Moberg’s team does is look at a company’s growth as well as the pace and durability of that growth going forward instead of looking backward in time.
There are still hidden names with long-durability growth potential across all market sectors. As such, he sees five growth platforms that will help drive economic value and that make for rich investing backdrops.
1. Disruptive commerce
Most of those who were locked into their homes by COVID resorted to the web for their shopping.
Markets like toys, media, and office supply have already experienced massive e-commerce disruptions, and some question the penetration room left. However, the space has just about 20% penetration to it, and there are areas like healthcare and real estate that are just getting started and have yet to be greatly impacted by e-commerce, he said.
For Moberg and his team, e-commerce giants Amazon, Shopify, and Mercado Libre have been the workhorses of this space. They are some of the fund’s largest positions from a sizing point.
2. Genomic advancements
Although the development of gene sequencing was revolutionary to the genomics space, it was mostly used by researchers and academia due to its high cost. But lower genome sequencing prices today allow individuals and companies to ramp up investing in the space as they are likely to find returns on investment, according to him.
And now that the process of determining the order of nucleotides in DNA is priced at around $1000 or lower, a larger investing universe that expands to areas like therapeutics, manufacturing, and diagnostics emerged, he added.
“The investing universe is very open, meaning it’s widener than people think; so it’s not just therapeutics companies in our opinion for genomics, it’s also the equipment manufacturers, so not just gene sequencers. it’s also other companies that make supplies like gels and refrigeration,” he said.
Moberg’s DynaTech fund owns shares of Thermo Fisher Scientific, which provides genomics solutions. An example of an ETF that invests in companies that benefit from innovations in this space includes the ARK Genomic Revolution ETF. It looks at businesses within therapeutics, bioinformatics, stem cells or molecular diagnostics.
3. Intelligent Machines
Machine learning and artificial intelligence have been necessary this past year as they facilitated the process of predicting infections, tracking cases, and estimating a recovery timeline.
There have also been more innovations in healthcare, involving changes to the design, manufacturing, and maintenance of machines, he said.
As machines become more intelligent over time, finished goods could be improved faster as product errors are likely to be spotted earlier and changes can be made to designs in response, Moberg said.
“We think that it’s an important part of how we are going to start to manufacture things going forward, and from our perspective, that’s very exciting,” he said
4. Exponential Data
The idea behind this theme focuses on the massive amount of data that has been and is being created.
“All that data needs to be cleaned and analyzed. Basically, only about 1% of data is actually cleaned and analyzed, and then in that case it needs to be secured, stored, and delivered,” he said.
Securing, storing, and delivering data will use applications like machine learning and augmented virtual reality, which will probably be creating change regarding the use cases of the data, he added.
Those seeking broader exposure to the intelligent machines and exponential data themes may want to consider the Global X Artificial Intelligence & Technology ETF. It seeks to invest in names that stand to benefit from further development and usage of AI, as well as those that provide hardware for AI’s use in big data analysis.
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