Technological advancement and the digitalisation of our economy have provided a significant opportunity for investors over the last few years. While recent headwinds have prompted investors to question how sustainable this growth is, we believe these concerns are overstated.
Pre-COVID, our team was very excited about the structural changes that were happening in technology and their ability to change each and every aspect of our lives. Be that innovation in cloud computing, advances in AI, machine learning or augmented reality.
What we saw early in the crisis was that COVID was acting as a catalyst for innovation beyond the tech sector; companies that hadn’t begun to think about their transition to become a digital enterprise had to do so immediately. Their workforce was migrating, their customers were moving in different directions and these companies needed to find ways to quickly adapt and respond to that. Essentially we saw trends that, as mentioned, we thought we’d witness in three to five years play out in 12 months. What keeps us incredibly optimistic is that these demand drivers haven't changed. We continue to see massive pipeline builds as companies engage and try to figure out how they can make their workplace and workforce more adaptable, and more responsive. How do they find new groups to market to? How do they reach new consumers? How do they stay relevant? These questions aren’t going away.
We saw tech companies come into the crisis with very strong balance sheets and it surprised us how much they aggressively invested through the cycle. We believe the benefits of this investment are likely to play out from a fundamental perspective over the next 12 to 24 months as economies open up and we begin to see rapid acceleration and adoption by consumers and businesses.
With that said, more recently we have seen recent negative price movements as investors rotated away from names that have performed best in the crisis so far. We believe this presents an opportunity for active management in this space. It's a great environment to differentiate between which are the key enabling technologies that are going to be integral features of the future versus those that were just benefiting from current circumstances and are likely to lag coming out of the crisis. We see particular opportunities in FinTech, namely digital payments, neobanks and the rise of mobile wallets, as well as smart components and, of course, semiconductors: the foundation for all the technology advancement.
While the cyclical nature of the recovery is likely to continue and headwinds are to be expected, our thesis remains unchanged. We believe tech innovation is now expanding beyond the US to the emerging markets and parts of Europe, beyond the mega-caps and down the full market cap spectrum. We think this thesis has strengthened as a result of the crisis and continue to believe that technological advancement has plenty of room left to run.
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