A professional investor tells us where he’d put his money. This week: Peter Lingen of the Pictet Robotics fund highlights some promising investments.
The modern robotics market began in the car sector in the 1960s. Since then it has expanded relentlessly into ever more industries, fuelled by technical innovations such as exponential growth in computer processing power, electronic miniaturisation, increasingly refined sensors and controllers, new materials and more compact batteries. And robotics will remain a growth industry thanks to several secular trends, including cloud computing, autonomous driving, electric vehicles and precision medicine.
Picking the winners
We invest in companies that benefit from the growth of robotics, automation and artificial intelligence. But this is a substantial investment arena, which makes fundamental research key.
We track 400 companies globally. Insights we gain from firms, meetings with brokers and trade shows each year help us narrow the field to a concentrated portfolio of between 40 and 60 stocks.
On average, the companies generate 75% of their revenue from activities that fall within our investment criteria. They belong to highly diverse sectors: vehicle components, life-sciences, med-tech, consumer robotics, semiconductors, industrial robotics, internet infrastructure and application software.
Hiding in plain sight
We look for companies that are market leaders in emerging niches, with clear technology leadership. We like groups that invest heavily in innovation and have the confidence to invest in themselves. While some of these are highly valued, we believe that others are “hiding in plain sight”. For example, Google (Alphabet) (Nasdaq: GOOGL) is a business with $155bn in sales that is growing at around 20% a year. Yet it is barely monetising some of its most valuable assets, such as Google Maps and Waymo, its self-driving technology division. Alphabet trades on just 13 times adjusted earnings.
Electronic design company Synopsys (Nasdaq: SNPS) is another good example. It helps chip manufacturers design and build high-performance semi-conductors. As the complexity of systems increases and new companies enter the semiconductor sector, the importance of design tools increases.
In recent years the stockmarket has begun to appreciate the strategic importance of both Synopsys and its main competitor Cadence Design Systems (Nasdaq: CDNS), which we also hold. We believe they continue to be an attractive investment over the medium term.
A promising niche
We recently bought a position in Altair Engineering (Nasdaq: ALTR), a company we’ve monitored since it floated in 2017. It is a leading producer of simulation software, which is bought by many of the world’s top vehicle and aerospace companies.
We like Altair’s business niche and we are confident that its software is increasingly relevant to a wide variety of different markets including energy, life sciences, consumer electronics and high-performance computing.
We believe Altair has good prospects for long-term growth. The success of its competitor Ansys (Nasdaq: ANSS), another of our investments, shows how valuable a successful simulation/3D-design company can be in the stockmarket.