Investors who construct global equities portfolios on a sector allocation basis are at risk of missing the next big disruptor, says Loftus Peak.
Speaking at a Mason Stevens lunch in Sydney this week, Loftus Capital founder Alex Pollak said the current approach to global equity investment is "really quite flawed".
Mr Pollak – whose firm invests in large cap technology firms such as Amazon, Google and Apple – said global investing is currently hampered by the individual sectors that are used to construct stock indices.
The problem, according to Mr Pollak, is that the companies that disrupt individual sectors rarely come from within the sector itself.
"If you were focused on media, for example, you might own News Corp and The New York Times but you will have missed Google and Facebook," he said.
Similarly, investors in the automotive sector would have "missed" Tesla, which was originally categorised outside the sector, Mr Pollak said.
"On a five to 10-year view we are clearly moving towards an electric car. So what is your global portfolio going to look like if between 4 and 10 per cent of it is held in oil, cars and in the car chain?" he asked.
"The answer to that question is that the things that are coming to eat the cars are currently not even in auto."
In fact, the car companies that are likely to disrupt the industry will be Chinese electric companies, he said.
"Our point is simply this: if you focus your energies on sector allocations and sector weightings you're effectively investing by looking backwards," Mr Pollak said.
"SEEK didn't come out of the media index, Google didn't come out of the media index, Tesla didn't come out of the car index, and all of the battery companies aren't coming out of oil.
"The problem with investing with respect to this global sector allocation is that you are investing with the rear vision mirror rather than looking forward."
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