The revolution set to save industries $421bn per year

Industry 4.0 – our name for the fourth Industrial Revolution – uses smart technology to enhance manufacturing processes, making them more efficient and more easily adaptable to customer needs. It promises the integration of automation, data, analytics and manufacturing to deliver new business and operating models. Computers and robotics will come together in an entirely new way in ‘smart factories’. Robots will be connected remotely to digital systems equipped with machine learning algorithms. These systems will analyse information coming from the shop floor and control the production line, making decisions with minimal input from human beings.

Future production lines will employ a fraction of the people currently needed, so the impetus for production to happen in low-wage locations may become less important. There may also be a greater need for software engineers who can monitor increasingly complex systems on-site and less need for manual labour.

For these reasons, Industry 4.0 could mean greater investment in production within Europe and the US. As a consequence, the production shift in the late 20th and early 21st centuries to low-wage economies, such as Mexico and Bangladesh, may be reversed. Inevitably, a revolution on this scale will likely shift economic distribution, both from country to country as well as from labour to capital. This could be the most material long-term consequence of Industry 4.0.

Walter Scott Global Equities team

Industry 4.0 – our name for the fourth Industrial Revolution – uses smart technology to enhance manufacturing processes, making them more efficient and more easily adaptable to customer needs. It promises the integration of automation, data, analytics and manufacturing to deliver new business and operating models. Computers and robotics will come together in an entirely new way in ‘smart factories’. … read more

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Flying high: the rise of the drones

Until recently, drones or unmanned aerial vehicles (UAVs) were most commonly recognised for their military application and, in small scale, as children’s toys. Now, via new technologies, they have uses in areas such as farming, industrial inspection, mapping and search and rescue. Commercial drones are fast becoming big business.

Many drones now carry infrared sensors, which allow them to “see” heat at great distances. For search and rescue and first responders, the technology could make rescue efforts faster and more efficient. UAVs can also cross sector verticals and have applications throughout nearly every industry, aided in part by new sensors like infrared. Energy companies can use them to inspect pipelines and solar farms to prevent leaks and boost efficiencies and transportation and infrastructure companies can test ageing infrastructure to improve safety. Agricultural and mining applications can boost yields and lower costs with improved mapping techniques.

The increasing sophistication and application of drones presents exciting potential to both businesses and tech-savvy investors. Autonomous drones, capable of operating independently, are also in development and could be a reality in the next three to five years. UAVs offer the potential to boost productivity via higher efficiency and resource utilisation as well as lower costs. UAVs may reduce environmental accidents by identifying looming risks. The sky really may be the only limit.

Robert Zeuthen – senior equity analyst, BNY Mellon Asset Management North America.

Until recently, drones or unmanned aerial vehicles (UAVs) were most commonly recognised for their military application and, in small scale, as children’s toys. Now, via new technologies, they have uses in areas such as farming, industrial inspection, mapping and search and rescue. Commercial drones are fast becoming big business. Many drones now carry infrared sensors, which allow them to “see” … read more

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Tech stocks: Have we returned to ’99?

Over the 12 months to 31 December the FANG[1] stocks rose on average some 50% in US dollar terms, while the broader S&P 500 rose just 23%. Asia too has its own tech leaders, colloquially known as the BAT stocks (Baidu, Alibaba and Tencent) and they, like FANGs, experienced spectacular returns in 2017 (up on average c80% in US dollars over the same time frame).

Without these ‘Dracula’ stocks (the FANGs and BATs combined), markets like the S&P 500 would certainly have been less exuberant over the past year.

The last tech bubble came at the close of the millennium. In our view, investors in the current crop of technology stocks have partied like it’s 1999 all over again. While this is fine in theory we prefer to take a less short-term view. To paraphrase the immortal words of Prince Rogers Nelson: “Life is a party but parties weren’t meant to last”. [2]

Nick Clay – portfolio manager. Newton, a BNY Mellon company

[1] The term FANG stocks refers to Facebook, Amazon, Netflix and Google (subsequently renamed as alphabet)

[2] From the song 1999 by Prince, released 24 September 1982, re-released 3 November 1998

Over the 12 months to 31 December the FANG[1] stocks rose on average some 50% in US dollar terms, while the broader S&P 500 rose just 23%. Asia too has its own tech leaders, colloquially known as the BAT stocks (Baidu, Alibaba and Tencent) and they, like FANGs, experienced spectacular returns in 2017 (up on average c80% in US dollars … read more

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AI and a brave new world of investing

The development of AI—computer systems that can think intelligently and learn as humans do—continues to generate global excitement and controversy, while dividing public opinion. Some fear the development of intelligent machines poses a greater threat to humanity than climate change and could even presage the end of the world. Others remain optimistic AI can bring huge benefits to humankind, including the scope to boost productivity, revolutionise the workplace and unleash a new wave of global economic growth.

We have identified an AI investment universe of about US$13.5 trillion, including 750 stocks, mainly comprised of US companies. We point to the potential for increased AI application in areas, such as retail, transportation, healthcare, manufacturing and agriculture. The development and adoption of so-called natural language processing and its inclusion in everyday items such as smartphones will likely drive future market growth.

We are going to places we haven’t gone before, and in doing so, there are some unanswered questions that may come into play on ethical dimensions and how much free will AI embodies in machines and what this is used for. These are topics that will come up more and more as AI becomes a part of our daily lives. The hope is we can exploit the potential benefits of AI and harness them for humankind in a way that fosters not only greater prosperity but also helps us to enjoy a better quality of life

Robert J. Kluchko – The Boston company, a BNY Mellon company

The development of AI—computer systems that can think intelligently and learn as humans do—continues to generate global excitement and controversy, while dividing public opinion. Some fear the development of intelligent machines poses a greater threat to humanity than climate change and could even presage the end of the world. Others remain optimistic AI can bring huge benefits to humankind, including … read more

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How ‘things’ will transform the tech sector

The Internet of Things (IoT) is becoming an increasingly prevalent trend in our everyday lives as it cuts across a wide range of products, industries and services. Devices from cell phones, coffee makers, washing machines, headphones, lamps, wearable devices and almost anything else you can think of are capturing, storing and analysing data via the cloud and/or PC. As a result, users are able to reach real-time conclusions anywhere in the world, benefiting from enhanced utility, improved safety and higher economic benefits from better managing their assets. Given how pervasive, reliable and inexpensive many of these devices are, IoT is spreading across the global economy and becoming a large and significant new growth catalyst for the technology industry.

Rob Zeuthen – The Boston Company Asset Management, a BNY Mellon company

The Internet of Things (IoT) is becoming an increasingly prevalent trend in our everyday lives as it cuts across a wide range of products, industries and services. Devices from cell phones, coffee makers, washing machines, headphones, lamps, wearable devices and almost anything else you can think of are capturing, storing and analysing data via the cloud and/or PC. As a … read more

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Should investors dig big data?

New digital business models are creating a torrent of data volume growth from new sources. In 2014 IBM estimated that 90% of the world’s data had been generated in just the past two years. This explosion in ‘big data’ is creating new opportunities for companies that can monetise the data they collect, store and analyse from sources like social media and e-commerce transactions.

These positive changes are not happening in a vacuum, however. The large, legacy technology vendors still have considerable home-field advantages, including access to large sources of capital and an ability to lock users and their data into proprietary ecosystems. Given the shift to the cloud, we view open source technology and its ability to reduce the friction from moving data between systems as a key, new opportunity.  We also believe the mergers & acquisitions cycle will continue as a competitive response from these large, legacy technology vendors.

Rob Zeuthen – The Boston Company Asset Management, A BNY Mellon company

New digital business models are creating a torrent of data volume growth from new sources. In 2014 IBM estimated that 90% of the world’s data had been generated in just the past two years. This explosion in ‘big data’ is creating new opportunities for companies that can monetise the data they collect, store and analyse from sources like social media … read more

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Uncovering alpha in unexpected areas

Gross domestic spending on R&D as a total of GDP

For a country of eight million people, Israel has long been punching above its weight in the technology sector. Israel’s expertise is certainly recognised by the global giants of technology, with Intel, Microsoft, Google and many others operating significant R&D centres there.

In the third quarter of 2014 alone, 170 Israeli high-tech companies attracted US$701m of capital, with 81% of that money coming from overseas investors.What’s more, other than the US, only China has more companies listed on the tech-heavy NASDAQ exchange than Israel’s 90, worth a total of US$40bn, as at end of June 2014.2

Fortunately there are also companies of such providence listed in the UK, which means investors can access great tech firms safe in the knowledge of a high level of corporate governance and regulatory scrutiny. The fact they are Israeli and perceived as ‘higher risk’ means they are trading at lower valuations than their fundamentals may warrant. Hopefully, over time this discount will close as their business models and resilience is further appreciated by the wider market, but in the meantime the cash generative nature of these companies contributes significant dividend income.

Paul Stephany, Newton

Sources:
1 IVC_HPMG, High-tech capital raising survey, Q3 2014
2 Forbes, 29 June

For a country of eight million people, Israel has long been punching above its weight in the technology sector. Israel’s expertise is certainly recognised by the global giants of technology, with Intel, Microsoft, Google and many others operating significant R&D centres there. In the third quarter of 2014 alone, 170 Israeli high-tech companies attracted US$701m of capital, with 81% of … read more

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