While Jordan Cvetanovski’s Pella Funds Management allocates a modest percentage to technology, nearly all of it is dedicated to AI.
Noting that tech is a crowded space, Cvetanovski explained on a recent episode of the Relative Return podcast that at this stage of the cycle, Pella Fund Management is more focused on what it should sell, than what it should buy.
Unlike its peers, Pella Funds Management does not have a hefty allocation to tech, having dedicated just 20 per cent of its fund to this basket.
“Every fund manager you talk to probably has 30, 50 per cent of their fund in technology, and they’ve done really well. Now, we have much less than that, we have less than 20 per cent in technology, but we focused everything, pretty much everything, on AI,” Cvetanovski said.
“Early on, we said this is the place to focus on. So, we bought from there.”
He explained that the way the fund manager invested in AI followed a natural chain of progression – starting with the global supplier to the semiconductor industry ASML, and moving on to semiconductor manufacturing company TSMC, and then finally to Nvidia.
“We said, okay, let’s keep going down, let’s keep pulling on this string. And then we bought the company that we said, where do these things go? They go in a data centre. Who benefits from data centres? We found a company called Vertiv in the US. What do they do? They make components and other things, like cooling for chips and AI.
“Chips need a lot more cooling. So, we bought that and then we said, okay, let’s keep going. What happens after that? We’ve got automation, so we bought Schneider in France. So that’s how we kind of progressed down the logic of going down this rabbit hole,” Cvetanovski said.
However, the fund manager admitted he is currently a little concerned about tech.
“It’s very much over owned,” he said.
“It’s more about us thinking what we should sell rather than what we should buy when it comes to technology at this stage.”
Cvetanovski explained that a lot of that concern rests on the impact AI could have on existing software business models.
“We don’t know how this affects the whole sector. So, we’re staying clear of that. And that’s been a good decision. And when that becomes clearer, we’ll pick out the winners and the losers within software as well,” Cvetanovski said.
Earlier this week, InvestorDaily reported that Nvidia’s market cap plummeted by $646 billion over three days following an unexplained stock price crash.
Speaking to InvestorDaily on Tuesday, AMP’s Shane Oliver said that this could be an early sign of an impending pivot from companies supplying tech to companies providing access to tech.
“You could argue a lot of the gains for the suppliers of AI have been seen. That part of the market is looking stretched, so the risk then is we move into the next stage, with the benefit [going] to, say, the Apples and Microsofts, although they have benefited already to some degree,” he observed.
“Eventually, the final phase is when consumers get the benefit.”
Nvidia has since rebounded slightly, with some suggesting this could mark the start of a more significant trend. However, while some anticipate prolonged losses for the chip maker, others view its recent dip as insignificant.
To hear more from Cvetanovski, click here.
