The shape of portfolios over the next decade will likely consist of companies that embrace digital disruption, according to fund manager Capital Group.
Speaking exclusively to InvestorDaily at a media briefing in Sydney, Capital Group investment director David Polak said the long-term trend that is beginning to emerge out of the companies it has invested in remains the internet as a global distribution platform.
“Technology providing the components that enable this digital transformation and consolidation across many industries – leading to better pricing, smoother cycles – should lead to higher valuations in due course,” Mr Polak said.
Mr Polak cited internet platforms like Amazon and Netflix not only have significant total addressable markets, but also have considerable consolidation.
Another example was Taiwan Semiconductor, a company makes the logic chips that go into the services that enable Amazon Web Services and Microsoft Azure to dominate the cloud computing market.
“Taiwan's semi is now one of two companies, along with Intel, that makes cutting edge logic chips. In 2003, there were 25 companies who made cutting edge logic chips,” he said.
Speaking on Capital Group’s New Perspective Fund (NPF), Mr Polak said there’s been a real wave and a theme of consolidation.
“You will both of the world’s manufacturers of aeroplanes. You’ll find two of the world's manufacturers of aero-engines. You’ll find one of the two companies that makes spirits around the world. You’ll find a number of the chemical companies that have recently consolidated. And so on and so forth,” he said.
“In particular, companies adopting a ‘multilocal’ approach – by establishing successful operations in their local markets, rather than retreating in the face of global trade barriers – are gaining traction.
“This is one of the key reasons why we believe the multinational companies that NPF invests in are better positioned for success in the long run.”
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