An investor’s look at technology today

By Brad Slingerlend, CFA, and Denny Fish, portfolio managers with Janus Henderson Investors

Technological change & opportunities

December 2017

Key Points

  • The pace of technological change continues to accelerate
  • Innovation will dramatically impact our day-to-day lives
  • The technology evolution creates attractive investment opportunities, but a selective approach is critical

The technology sector is rewriting the operating system for the global economy, driven by new paradigms in computing and connectivity. The result may be the fastest pace of innovation and the highest rate of disruption since the Industrial Revolution. New products and services are expanding the reach of technology, increasing the number of end markets in which they can be applied.

The opportunity knows no geographical boundaries, nor is it limited to any industrial sector. This disruption is on full display across the world as consumers adjust how they shop, consume media, communicate and even interact with their automobiles.

A world of interconnectivity

Much investor focus presently centers on the “Internet of Things” (IoT), a network of physical devices connected to the internet. This connectivity enables interaction with other devices and end users, thus creating an array of novel applications. Yet the current iteration of IoT is but a step.

Looking forward, we believe the convergence of connectivity, data collection and computing power will lead to what we call “The Internet of Intelligent Things.” At that stage, programs using industry-specific algorithms will be able to teach themselves as they process data, thus identifying relationships and achieving solutions that exceed what humans can achieve on their own.

Internet of Things

Internet of Intelligent Things

Greater efficiencies in the workplace and at home

Consumers stand to benefit from the convergence of these computational and communications services in innumerable ways. All in all, the impact of technology on our lives will be significant.

Managing one’s home is likely to become more efficient. Communication over the internet, for example, may enable a thermostat to adjust to a change in the weather forecast or to notify you when your refrigerator is out of milk. Before it gets to your refrigerator, food may be cultivated with the assistance of drones that monitor crop moisture and algorithmically adjust irrigation, again, with the help of an online weather forecast.

We expect even newer concepts like machine vision to emerge. Greater language capabilities also continue to evolve, evident in the deployment of self-driving technologies and voice-recognition devices. Such applications will ultimately evolve to a point where they can be categorized as artificial intelligence.

Also in the mix is so-called “augmented reality,” which places virtual images in real world settings.  For example, a surgeon may be able to view a device “implanted” in a patient before the procedure occurs, thereby allowing them to see a vision of the operation beforehand.

Optimizing exposure to technology’s innovators

When seeking to gain exposure to new opportunities presented in the technology sector, many investors opt for low-cost, passive strategies. Caution is merited when considering this approach.

By nature of their construction, passive strategies do not emphasize identifying the sector’s eventual winners and can expose investors to structurally challenged firms.

The technology sector is in the early stages of this generational shift, and that’s when the secular headwinds are difficult to see.

Rather than assume the existing landscape remains intact, investors may be better served to maximize their exposure to the ecosystems which stand to become dominant in three to five years. This requires deep research with the goal of identifying which disruptors will become the sector’s leaders of tomorrow and which legacy companies are at risk of being left behind.

A financial advisor can help provide you context and background information for making selective investing decisions within the fast-changing technology sector. Talk to your financial advisor about the appropriate role for technology investments in your overall portfolio.

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