Can technology empower survivors
Artificial intelligence is revolutionizing asset management
How reliable is artificial intelligence? What role does it play today in asset management and what opportunities and risks are associated with it for the entire industry?
Such questions are not only asked by institutional investors and fund managers. Private investors are rightly asking themselves how they can benefit from artificial intelligence themselves.
One fund that specifically uses this technology in the investment process is our PEH EMPIRE fund. Asset allocation has been controlled with it since mid-2016 and shows how artificial intelligence can be an important and meanwhile essential component in a functioning system.
Whether you are an advocate of algorithms or not, there is ample evidence that a system based on artificial intelligence will perform better in the long term than a system that does not use this technology.
This is how AI can be used in the investment process
The possible uses of artificial intelligence in the investment process are diverse.
Using a concrete example, however, the use of the technology can be well described: 100 signals, among them such as dividend yield, profit dynamics or the classic valuation level of a company, have different hit rates over different time intervals - this is a challenge that every fund manager and private investor faces faces every day.
Is the MACD, i.e. the moving average convergence divergence used in technical analysis, better over 10 days than over 9 or 11 days? Which indicator should be used accordingly?
Artificial intelligence can answer precisely these questions, for example by making a wide variety of calculations and analyzes on the timeline.
Algorithms do countless calculations in the background, compare, evaluate probabilities and at the end show the weighting of an indicator.
In the PEH EMPIRE, for example, the artificial intelligence takes over all computing and checking processes that affect the allocation process, i.e. the weighting of stocks and bonds.
In this way, the scoring model for stocks is constantly being adapted. It is crucial that the different signal generators are automatically optimized again and again by the system and in this way it can be analyzed and ensured which indicator is the one with the best risk / reward ratio at what time.
What is deliberately left out of the technology at PEH EMPIRE is the component that initially causes discomfort to many people in other areas: the independent further development of the system.
We have made clear demarcations here. There are also systems that can consciously develop and learn, for example neural networks.
The PEH EMPIRE has also worked with it in the past. The balance sheet is rather sobering, which is why the PEH scoring system has been used for active portfolio allocation of the PEH EMPIRE since June 30, 2016.
Increasing importance of AI among professional investors
The use of artificial intelligence is growing increasingly in the fund industry. According to our estimates, AI is currently used in 25 to 45 percent of fund strategies. More and more fund managers are dealing with it - and the trend is rising.
Of course, the strategy and the approach to investing with the use of artificial intelligence also have to fit together. Not every investment approach is tailored to the use of this technology per se. And as in other areas, the fund industry is evolving and incorporating new technologies into its working mechanisms.
Why the use of artificial intelligence is worthwhile
The evaluation of massive data is probably one of the greatest advantages that artificial intelligence brings with it.
The flood of information that is processed on a daily basis could not possibly be evaluated by hand in the same way as a system using this technology can. Preparing tens of thousands of invoices within a very short time is a challenge that could not be done manually.
Another very important aspect is the emotion factor. Emotions can have a positive effect on performance, but in the vast majority of cases they are a hindrance.
Most investors find it difficult to keep a cool head - in the truest sense of the word - when a share does not perform as expected. Artificial intelligence, on the other hand, is free of emotions and only acts as it has been programmed.
If the programmed system shows that an indicator is weakening because the hit rate drops, it is exchanged for an indicator whose performance is comparatively better over the timeline. This is an advantage that is unemotional with the help of artificial intelligence.
What are the chances and where are the dangers? The risks that exist in investing per se apply, but the technology behind it does not influence them.
In the case of the PEH EMPIRE, it has been shown that a system changeover can be successful and is worthwhile for the investor. Since the modern technology was implemented in the actively managed strategy in mid-2016, the fund has achieved a performance of over 30 percent and thus clearly outperformed its peer group.
As part of the Berlin Greentech Festival, the Berlin-Brandenburg organic food manufacturer Jouis Nour presented its all-round ecological concept. The company is committed to sustainability in every respect. Regional and seasonal raw materials, optimized supply chains, a sustainable energy supply, recyclable packaging and of course the absence of any preservatives.
During the lunch break or after a long day at work - the market for ready meals and snack food has been growing for years - and not just in the big cities. At the same time, the demand for organic food and healthy alternatives to conventional nutrition has increased significantly in recent years. The company Jouis Nour has been one of the innovative pacesetters in this area for over ten years, and the organic food specialists helped develop the “BIO to go” concept.
In the manufacture of its products, Jouis Nour relies on the triad regional, sustainable, fresh. The use of controlled organic ingredients ensures that no genetically modified raw materials are used. At first, Jouis Nour ran bistros and restaurants. In order to meet the rapidly growing demand, they converted the business to a food manufacture.
A big problem with organic products is that they have to do without artificial preservatives and therefore do not have a long shelf life. It works at home or in a restaurant, everything is freshly prepared and served straight away. However, our goal was that our snacks could be sold anywhere.
A gentle production process for salads was therefore developed in order to be able to offer BIO to go customers a fresh and natural product that is rich in vitamins and antioxidants. Today the company's product range consists of salads, tarts, snacks and desserts.
In 2018, Jouis Nour opened a new food factory in Dahlewitz, ten kilometers south of Berlin. The production facility is located in the envopark on around 2,000 square meters. A highly efficient cogeneration system and a photovoltaic system ensure ecological and economical self-sufficiency.
Thanks to the smart combination of building efficiency and ecological energy supply, 30 tons of CO2 per year can be avoided. The envopark is one of the few ecological business parks in Germany. In addition, we were able to shorten the routes of our suppliers and customers, both in the Brandenburg region and in Berlin.
The name "Jouis Nour" is made up of abbreviations of the French words "jouissance" and "nourriture", in German "enjoyment" and "nutrition".
The raw materials come mainly from regional agriculture and have organic certification. When choosing a recipe, both taste and the requirements for a balanced diet play a major role.
The Jouis Nour products are already established in the market. In addition to big names in the organic sector such as the Bio Company, Dennree and Alnatura, our products can also be found increasingly in bakeries, food retailers and hospitals.
The green innovation fair Greentech Festival, which took place from May 23rd to 25th on the site of the former Tempelhof Airport, was attended by around 50,000 people and was a unique event for the green technology of the future.
In addition to the trade fair exhibition, the Green Awards and the Green Leaders Conference, the “Formula E” race, the top event in electric motorsport, was part of the festival. Former Formula 1 driver Nico Rosberg is a co-founder of the Greentech Festival.
Neuburger Berman has mapped the changes in the transport sector in a future-oriented portfolio of topics.
The mutual fund strategy Neuburger Berman Next Generation Mobility Strategy at a glance:
1. A portfolio of companies that are benefiting from the current and expected rapid growth of the market for autonomous, internet-enabled electric vehicles.
2. Investments in established companies that take advantage of long-term changes in the transportation sector.
3. A concentrated, research-intensive and individual value-oriented portfolio for which the Neuberger Berman sector experts identify market leaders and their strengths.
4. An investment approach that takes environmental, social and governance-related factors (ESG) into account, especially as the transport sector becomes cleaner, safer and more efficient.
5. The Neuberger Berman Autonomous Vehicle strategy has been around for over a year. It has a volume of over USD 1 billion.
Global trends such as population growth and aging as well as urbanization are driving the development of innovative mobile technologies.
Environmental and safety challenges are increasing. Therefore, the international transportation sector (US $ 4.2 trillion in volume) has to change.
Advances in connectivity technology, increasing interest in electric cars and the development of autonomous vehicles will continue to play an important role in the years to come.
There is little doubt about the relevance of next-generation mobility. The safety requirements are increasing, green energies are becoming more important and car pools are being formed more and more frequently.
From 2017 to 2030, annual sales in this sector should increase by an average of 21% p.a. to 623 billion US dollars.
How reliable is artificial intelligence? What role does it play today in asset management and what opportunities and risks are associated with it for the entire industry? Such questions are not only asked by institutional investors and fund managers. Private investors are rightly asking themselves how they can benefit from artificial intelligence themselves. One fund that specifically uses this technology in the investment process is our PEH Empire Fund. Asset allocation has been controlled with it since mid-2016 and shows how artificial intelligence can be an important and meanwhile essential component in a functioning system. Whether you are an advocate of algorithms or not, there is ample evidence that a system based on artificial intelligence will perform better in the long term than a system that does not use this technology.
This is how AI can be used in the investment process
The possible uses of artificial intelligence in the investment process are diverse. Using a specific example, however, the use of the technology can be well described: 100 signals, including, for example, the dividend yield, profit dynamics or the classic valuation level of a company, have different hit rates over different time intervals - this is a challenge that every fund manager and private investor faces faces every day. Is the MACD, i.e. the moving average convergence divergence used in technical analysis, better over ten days than over nine or eleven days? Which indicator should be used accordingly? Artificial intelligence can answer precisely these questions, for example by making a wide variety of calculations and analyzes on the timeline. Algorithms do countless calculations in the background, compare, evaluate probabilities and at the end show the weighting of an indicator.
In the PEH Empire, for example, the artificial intelligence takes over all computing and checking processes that affect the allocation process, i.e. the weighting of stocks and bonds. In this way, the scoring model for stocks is constantly being adapted. It is crucial that the different signal transmitters are automatically optimized again and again by the system and in this way it can be analyzed and ensured which indicator is the one with the best risk / reward ratio at what time. What is deliberately left out of the technology at PEH Empire, however, is the component that initially causes discomfort to many people in other areas: the independent further development of the system. We have made clear demarcations here. There are also systems that can consciously develop and learn, for example neural networks. The PEH Empire has also worked with it in the past. The balance sheet is rather sobering, which is why the PEH scoring system has been used for the active portfolio allocation of the PEH Empire since June 30, 2016.
Page two - Increasing importance of AI among professional investors
The use of artificial intelligence is growing increasingly in the fund industry. According to our estimates, AI is currently used in 25 to 45 percent of fund strategies. More and more fund managers are dealing with it - and the trend is rising. Of course, the strategy and the approach to investing with the use of artificial intelligence also have to fit together. Not every investment approach is tailored to the use of this technology per se. And as in other areas, the fund industry is evolving and incorporating new technologies into its working mechanisms.
Why the use of artificial intelligence is worthwhile
The evaluation of massive data is probably one of the greatest advantages that artificial intelligence brings with it. The flood of information that is processed on a daily basis could not possibly be evaluated by hand in the same way as a system using this technology can. Preparing tens of thousands of invoices within a very short time is a challenge that could not be done manually. Another very important aspect is the emotion factor. Emotions can have a positive effect on performance, but in the vast majority of cases they are a hindrance. Most investors find it difficult to keep a cool head - in the truest sense of the word - when a share does not perform as expected. Artificial intelligence, on the other hand, is free of emotions and only acts as it has been programmed. If the programmed system shows that an indicator is weakening because the hit rate is decreasing, it is exchanged for an indicator whose performance over the timeline is comparatively better. This is an advantage that, with the help of artificial intelligence, comes into its own without emotion.
What are the chances and where are the dangers? The risks that exist in investing per se apply, but the technology behind it does not influence them. In the case of the PEH Empire, it has been shown that a system changeover can be successful and is worthwhile for the investor. Since the modern technology was implemented in the actively managed strategy in mid-2016, the fund has achieved over 30 percent performance and thus clearly outperformed its peer group.
For a long time, the real estate industry was considered particularly conservative, perhaps even a little outdated. But thanks to the lively proptech scene, i.e. the start-ups with a focus on real estate, the image of the industry is changing. The “young savages” are often heard from; some of them have what it takes to not turn the real estate industry completely upside down with their approaches, but still have a significant impact on it.
The number of proptechs themselves is declining slightly: while the Internet platform Proptech counted exactly 300 German proptechs in September 2018, there were 289 in April 2019. There are two reasons for this: on the one hand, the scene is consolidating - and on the other hand, not all providers can join forces prevail with their idea. Therefore, the current question arises as to how the proptech scene is developing, and with it the newly acquired market dynamics and the digital transformation of the real estate industry. What do proptechs have to achieve in order to remain competitive in the long term? The following five trends play a key role in answering these questions.
The start-up and start-up boom of recent years initially ensured that there were more and more proptechs. At the same time it became more difficult to find the ideal cooperation partner among the abundance of proptechs; especially since the providers want to score with more and more special offers.In order to solve this problem, the channels and formats with which established investors and young growth companies can find each other are steadily increasing. The offer is diverse and ranges from the trade fair to proptech speed dating. The aim is to simplify matchmaking.
The pressure to innovate increases
Innovation and digitization also go hand in hand in the real estate industry. That is why even the established companies within the industry are now working flat out on their own digital transformation. For proptechs, however, this expressly not only creates opportunities, but also difficulties. The following problems can be identified: Solutions are often difficult to patent or otherwise legally protect. Therefore, it is possible for the large companies to simply adopt many applications.
Side two - cooperation, intelligent money, brand awareness
That is why proptechs always have to be one step ahead of the big players with innovative solutions. They currently benefit from greater agility than numerous corporations, which have large capital reserves at their disposal, but which often tend to drive internal change more slowly due to relatively rigid departmental structures and internal bureaucracy. Those proptechs whose technology is immature or not scalable or cannot meet the requirements of the real estate industry, however, have an increasingly difficult position.
Cooperations with other proptechs
In order to bundle existing competencies and further promote the creative exchange of ideas, more and more Proptechs are entering into collaborations with one another. However, not only internal partnerships, but also cross-industry collaborations will become more and more important in the future. Thanks to the newly acquired possibilities offered by the development of blockchain technology, it is also important to offer overarching solutions. It is crucial that these are compatible with other areas of the value chain. So it will be essential for the future not only to cooperate with fintechs, i.e. start-ups from the financial sector, as well as other growth companies, but also to include them in your own business network. Of course, this often happens in the form of mergers & acquisitions (M&A).
Intelligent money is more important than big money
What every young entrepreneur is particularly happy about are particularly lucrative investment offers. Still, proptechs shouldn't make hasty decisions. In the current market environment, the question that matters is how “intelligent” the respective capital is. An investor should not only create the financial basis so that the proptech can continue to grow. Rather, apart from financing, it is about exchanging knowledge and giving founders the opportunity to participate in their own market network - especially in the real estate industry, which functions like hardly any other industry through personal contacts.
Increase brand awareness
There are many challenges for young protechs. Sometimes a proptech fails not because of the quality of the offer, but because of a lack of awareness in its own market environment. The company's presence becomes a decisive factor in its success or failure. An established investor can remedy this by increasing the company's brand awareness without skimming off the important ideas for his own benefit.
The rapid growth and the differentiation of proptech solutions in recent years show that the opportunities for young founders in the real estate industry are better than seldom before. At the same time, it is becoming more and more challenging to actually use the market potential.
Millennials and members of Generation Z use fitness trackers and smartwatches to track training data and health information. You are ready to spend more money on interesting sporting goods and athleisure brands. Examples are the running and cycling application Strava, shoes from Allbirds, which are made from natural materials, or the smartwatch from Apple. They also eat more natural and organic foods with healthier ingredients.
For millennials, wellness is an ongoing commitment. The attitude of Generation Z towards consumption is particularly noteworthy. It is increasingly an expression of individual identity. Therefore, it is given a high level of individual importance. The topic of health conscious consumption is diverse and includes sub-topics ranging from fitness to food ingredients. It also includes workplace wellbeing, good looks, sleep, personal attention, sports equipment, personalized nutrition, travel and vacation accommodation, and mental wellness.
Within this broad spectrum, the segment for healthy and organic foods is growing the fastest. For example, low-calorie sweeteners and vegetarian snacks are becoming increasingly popular. The demand for plant-based protein, such as can be found in meatless sushi or vegan dishes, is also gaining momentum. Many large packaged food manufacturers are investing in this area, including General Mills (Beyond Meat), Nestlé (Impossible Foods) and Unilever (The Vegetarian Butcher).
Organic food manufacturers benefit from numerous factors
The segment has been shaped by some fundamental developments. The most important one is the strong growth of small local brands, especially in emerging markets. In addition, there is the health and wellness trend, which increases the demand for higher quality ingredients. Another factor is the increasing desire for convenience, be it in the form of take-away or shorter preparation times.
The trend towards health-conscious consumption also benefits as such from the Internet, which has lowered the barriers to market entry. This applies to all sub-areas of the industry - manufacturing, marketing and sales. The trend has received a further boost from the spread of start-up companies. This made new and innovative ways of food production possible. Impetus is also coming from social media, as platforms such as Instagram and Snapchat enable targeted advertising. Last but not least, thanks to online trading and logistics, every company can deliver its products directly to the customer's door.
Packaged food manufacturers are under pressure
Today, young consumers are more likely to have healthy diets and rely on the internet to find the most suitable foods. As a result, traditional packaged and processed food manufacturers will have to reinvent themselves as fresh and organic food providers, as well as food suppliers and online supermarkets, better serve the needs of millennials.
Page two - online trading lowers barriers to market entry
In addition, the expansion of the Internet and online trading has lowered the market entry barriers for new providers in this area. Creating a new brand and promoting it on networks like Instagram has never been easier. All of these developments have disrupted traditional food manufacturers. For many years her focus was on efficient production and lowering prices, which often came at the expense of quality and health effects.
Consumers are now much better informed and are choosing other brands and products. It comes as no surprise that returns for most US-based traditional packaged food manufacturers have declined relative to the S&P 500 Index since at least 2017. Many of these companies are now striving to realign their product offerings through acquisitions.
The market for special ingredients in the food sector is growing
Anyone who understands the health-conscious consumption segment can realize considerable advantages as an investor. The structural winners of this trend can either be new suppliers who are able to benefit from it, or traditional food manufacturers with well-balanced product offerings.
We believe that within this segment, the specialty ingredients market is growing rapidly and represents a significant investment opportunity. An example of this is the production of the enzymes needed to make probiotic yogurts. Currently, the specialty ingredients market is worth around $ 75 billion. This means that it is still at the beginning compared to the large suppliers of packaged food. However, it is growing faster and faster and has high profit margins and returns.
A traditional portfolio mix of stocks and bonds has had its day. Investors who have shifted large parts of their fixed assets from bonds to shares in the low interest rate environment are faced with a dilemma: the increased volatility on the markets has distorted the risk / return profile of their portfolios. In view of the increasing volatility on the stock markets, switching back into bonds hardly appears to be a solution: interest rates can hardly fall any further. That makes long-term exposure to bonds unattractive, as prices would plummet if interest rates reversed. So alternatives are needed, more precisely: alternative asset classes that offer diversification opportunities and protect against falling prices. This means that the underlying assets must be as uncorrelated as possible to traditional markets. So far, the focus has been on investment opportunities such as hedge funds, real estate or raw materials such as precious metals. Now a new alternative joins this list: the blockchain asset.
Digital currencies are growing up
So far, institutional investors have rarely considered blockchain assets. On the one hand, this may be due to the lack of a suitable vehicle that offers access to a broadly diversified portfolio and sufficient liquidity. Or simply because it is a new technology that is extremely complex. Whatever the reason, whoever takes a closer look at digital currencies and blockchain assets will find that they are characterized by properties that make them a suitable alternative asset class. And this conviction is noticeably gaining acceptance in established circles. For example, the National Bureau of Economic Research, the largest economic research institute in the USA, recommends adding digital currencies with a weighting of up to six percent in the portfolio in order to generate an optimal allocation.
Blockchain assets offer all the advantages of an alternative asset class
Probably the best-known digital currency, Bitcoin, still sets the tone on the market. Therefore, blockchain assets correlate strongly with each other. However, there is a correlation of almost zero to classic asset classes such as stocks or bonds. This makes this asset class attractive from a portfolio diversification perspective: It offers downside protection should traditional markets decline. Blockchain assets can also help optimize the portfolio's overall risk-return profile. If you look at the development of the Sharpe ratio of Bitcoin over the past five years, the digital currency has outperformed the common traditional asset classes such as bonds, stocks, gold, crude oil or real estate in terms of their risk-adjusted returns.
Blockchain assets add value to traditional alternative asset classes
Blockchain assets are not just another alternative asset class, they also offer unique advantages within this aggregate. On the one hand, the rates of a digital currency are shown in real time. This makes it easier to determine the real value of an asset. This is precisely where there is often a problem with other alternative asset classes such as real estate.
Side two - Blockchain assets belong to Liquid Alternatives
Blockchain assets can be traded on digital stock exchanges at any time, which is why they can be assigned to the liquid alternatives segment. That makes them particularly exciting for investors. Trading traditional alternatives such as raw materials in a liquid manner usually requires an investment via a synthetic vehicle such as futures or ETPs, in which the underlying value itself is not held. In addition, due to their decentralized character and functional independence, blockchain assets are not influenced by monetary policy measures by central banks or governments that want to use them to provide economic impetus. Compared to fiat currencies, they offer protection against political risks.
The market is growing
A study by the World Economic Forum from 2015 predicts that by 2027 ten percent of global gross domestic product (GDP) will be stored in blockchain technologies and their transfer could be handled using the same technology. The main reason for this is the accelerating effect on global financial inclusion. This stems from the fact that blockchain applications are not subject to national borders. Anyone can invest in them from anywhere in the world and they are not subject to high minimum investment hurdles. That opens this market up to groups that are underrepresented in the current financial world. Ultimately, all investors who anticipate this development at an early stage will benefit from this growth potential.
The digital banking group Finoa predicts that the market for digital asset classes could reach US $ 27 trillion by 2027. This corresponds to an annual growth of 1.5 percent of global GDP. For the coming year, Finoa expects a market size of one trillion US dollars.
As a result, blockchain assets and digital currencies are interesting options for institutional investors to get involved in alternative investments, because with increasing volatility, the various diversification options of their own portfolio become more important again.
Sustainability is no longer a marginal issue in the financial world. More and more private investors and institutions are investing their wealth responsibly in order to face global challenges. In addition to stocks, bonds are increasingly selected based on ecological, ethical and social criteria. The volumes of this asset class are growing correspondingly fast: After 73 billion euros in 2016, new issues totaling 140 billion euros were launched on the market in 2017, according to Bloomberg.
The lack of global standards for green bonds has led to divergent approaches to transparency in this sector and prompted regulators to take action. It is true that the issuers of green bonds are typically obliged to use their bond proceeds for projects with environmental benefits and to report regularly. However, there has not yet been a binding review and verification for the label is currently still voluntary. It is therefore often difficult for investors to understand which projects they are really investing in and how they are developing.
Analysis traffic light for bonds
Investors should therefore analyze the issues of green bonds all the more precisely in order to ensure their suitability for sustainable portfolios. We are therefore subjecting these bonds to a more in-depth analysis in three key areas of environmental, social and governance (ESG). Every new bond that we add to client portfolios for primary issues is reviewed by a credit analyst. At the end of the evaluation there is an analysis traffic light.
For example, Red received a sustainable bond from an automobile manufacturer: The proceeds from the bond were to be used to finance retail leasing and sales financing for the company's hybrid vehicle models, which would not have changed the issuer's usual business processes. In addition, the ecological parameters of the hybrid vehicles turned out to be questionable and ultimately the company failed with regard to the ESG parameters due to the "worst-in-class" governance practices and poor work management.
The color yellow indicates that a sustainability bond has defects, while green indicates that the requirements have been met. A real-world example: a utility that uses its earnings to finance or refinance onshore and offshore wind projects in the renewable energy sector in the UK and Germany. The company also has a best-in-class ESG rating and reports on the greenhouse gas emissions avoided in its annual sustainability report.
Side two - lack of global standards, detailed analyzes
Another supplier did not meet our sustainability requirements. While his offshore wind projects had a positive impact on CO2 reduction, the use of the proceeds to convert central power plants into biomass raised questions. Because when wood pellets are burned, a considerable amount of CO2 is released. Deforestation could also be accelerated if the technology is used on a large scale.
Lack of global standards
With a view to the risks of the market for green bonds, we therefore recommend proceeding cautiously and carefully examining the sustainability features.There is currently no global standard. With a view to Europe, the European Investment Bank (EIB) is a step in the right direction. It aims to play a global pioneering role in green financing by exclusively supporting climate-friendly projects in the future. The EIB is owned by the EU, which is also working on a uniform classification system - known in technical jargon as a taxonomy. Using these harmonized criteria, it should be easy to determine whether an economic activity is ecologically sustainable. The “Financing Sustainable Growth Action Plan” is one of the legislative initiatives aimed at making the financial industry more sustainable. The aim is to use ten measures to direct capital into “sustainable and integrative” investments. Last but not least, this includes an expansion of existing reporting requirements and defined review criteria.
It is to be supported that pension institutions are in future encouraged to pursue these within the framework of the green bond standards in the EU legislative process - as long as this remains voluntary and principle-based, for example as a 'comply or explain' principle. It is undoubtedly necessary to design possible new reporting requirements for green bonds in line with the disclosure regulation, which is also in the EU legislative process.
No substitute for a detailed analysis
Legislative advances such as those mentioned here are essential, especially as we believe we have reached a tipping point where the lack of binding guidelines in this area could limit the market. It is also possible that bonds are marked as green just to meet the demand of institutional investors - even if the activities to be financed cannot really be viewed as sustainable. For example, the income from green bonds was used to build airports and parking lots. Ultimately, there is no clear fit for green portfolios: carbon intensive energy companies need to improve their carbon footprint, but green debt issuance does not necessarily make them suitable for related bond funds and strategies.
Investors want to use their money wisely. Sustainability labels are a simple, but not yet clearly defined, way of integrating sustainable goals into portfolios. However, one should not forget that green bonds and other investment products from the sustainability sector are no substitute for the actual investment goals. Rather, the investments made require a thorough fundamental and economic analysis. Since the ecological analysis is already part of green bonds, the actual goals, such as the payment of regular pensions to pension funds, are decisive.
A distinction must be made between direct and indirect analysis. The former is necessary if, for example, a pension fund purchases green bonds directly. Indirect means buying through a fund company that selects a pension fund, for example.
The reporting season in the US is in full swing - and IT companies are once again dominating the headlines. Strong business results have boosted prices and helped IT stocks outperform the broader market again this year. While the S&P 500 Index has risen by around 17 percent, the S&P 500 Information Technology Index has risen by around 27 percent.
The best symbol for the upswing is Microsoft, which saw its share price rise sharply after a terrific result and exceeded a market value of one trillion US dollars for the first time. Microsoft is currently the most valuable company in the world.
At Danske Invest we have long been overweight the IT sector and continue to do so. The company's results confirm that this is a good decision. Internet giants such as Apple, Facebook and Amazon also surprised positively. Technically speaking, Facebook does not belong to the IT industry, but to the communication services sector, while Amazon is also very active in the cyclical consumer sector.
Companies have received new fuel
One question currently posed by many investors is whether the good times for IT stocks can last. Is there even more to be found here? While we were a little hesitant before the reporting season, our answer is now clear and unequivocal: yes!
After the steep rises in share prices since the beginning of the year, we were gradually reaching a point where stock prices needed fresh fuel and confirmation that the IT sector is still headed in the right direction. We believe that the company's results so far have provided many of the hoped-for answers, although there have of course been disappointments here and there.
Corporate involvement in new technologies is a major driver of the sector. We see strong investment activity in the areas of cloud solutions, big data and internet security, among others. Here, Microsoft's business results and future expectations reinforce our view that IT companies will continue to benefit from reasonable levels of investment.
Fundamentals remain strong
Also, investors should note that IT companies have dynamic earnings growth, solid cash flows, and low debt compared to the broader stock market. This reduces their vulnerability to globally rising interest rates.
Overall, we believe the sector's fundamentals are still strong. We therefore continue to assume that the industry will perform better than the overall market. As a rule of thumb, we recommend that investors have a broad global focus on the IT sector, for example through a fund. But in our opinion there are also particularly promising sole proprietorships.
A potential threat to the sector, in addition to declining corporate investment levels, is an appreciation of the US dollar. The globally dominant US IT industry generates 67 percent of its sales abroad - and a stronger US dollar can weigh on revenue here. Paradoxically, this can happen if the country's economy develops too well, so that interest rate hikes by the US Federal Reserve come back into focus.
Less optimism for communication service providers
We are more cautious about the industry for communication services with companies such as Facebook and Alphabet (Google). In this area, Danske Invest is weighted neutrally. However, this does not mean that investors should avoid this sector completely, but that it should have a lower weighting in the portfolio than the IT sector.
Politics has a strong focus on companies like Facebook and Alphabet, which are particularly geared towards individuals. These companies should, among other things, comment on issues such as stricter regulation and a possible digital tax. This can affect businesses for a considerable amount of time.
In Germany there are four times more start-ups than start-ups due to a lack of employment alternatives. 9.1% of the start-ups show a medium to high technology intensity, the reference value for the USA is significantly lower at 5.2%. For the first time since the beginning of the GEM data series in 1999, the highest start-up rate is not found among 35-44 year olds (6.14%) but among 25-34 year olds (6.64%).
In Germany around 38% of those questioned would refrain from starting a business out of fear of failure. This value has often been significantly higher in recent years, so that a positive development can be observed in Germany. At the same time, the start-up opportunities are perceived more positively. Overall, over 42% of those surveyed in 2018 stated that they saw good start-up opportunities in their region. This value was well below 30% in 2010 and in previous years.
However, the results also show that the entrepreneurial spirit is not very widespread among the population in Germany. Only a relatively small number of people (38.3%) rate their start-up skills and experience in setting up a start-up as positive. This gives room for action for supporters and promoters of start-ups and entrepreneurship.
The GEM Country Report Germany 2018/2019 can be downloaded from www.rkw.link/gem2019 or can be ordered free of charge as a printed copy. All GEM country reports for Germany since 1999 are available for download at www.wigeo.uni-hannover.de/gem.html.
About the RKW competence center:
The RKW Competence Center supports small and medium-sized companies in Germany in strengthening and maintaining their competitiveness. At the interface between science, politics and business, practical recommendations and solutions are developed on the topics of securing skilled workers, start-ups, innovation and corporate development. The RKW Competence Center is a nationwide, non-profit organization of the RKW Rationalisierungs- und Innovationszentrum der Deutschen Wirtschaft e. V. and is funded by the Federal Ministry for Economic Affairs and Energy on the basis of a resolution of the Bundestag. Further information: www.rkw-kompetenzzentrum.de
About the Institute for Economic and Cultural Geography at Leibniz University Hannover:
Since 2005 the institute has been the home of the German GEM country team, headed by Prof. Rolf Sternberg, who previously founded this project during his time at the University of Cologne. The research focus of the Institute for Economic and Cultural Geography includes the economic spatial implications of the start-up process, which is being investigated by various teams in several third-party funded research projects. The GEM is one of these projects. Further information: www.wigeo.uni-hannover.de
In 2018, BMO Global Asset Management (BMO) supported 665 companies in 46 countries on their way to greater sustainability. This is shown in the “Responsible Investment Annual Review” published by the company today. The report documents 237 cases or milestones that BMO partner companies have reached. With the help of an “active ownership” approach, the companies were able to meet their ESG requirements and continuously improve sustainable practices over the course of the year. Active ownership is a process of influencing management with regard to ESG in addition to coordinating the owners at the general assembly. The overarching goal is to achieve the 17 Sustainable Development Goals (SDG) of the United Nations.
In 2018, BMO's Responsible Investment Team concentrated on ESG issues: which pose the greatest long-term threats for shareholders and companies, but at the same time also harbor opportunities. This includes:
Environmental: 20 percent of the Active Ownership Agenda
Climate change was one of the top stories worldwide in 2018. The Responsible Investment Team at BMO Global Asset Management has actively dealt with companies from highly exposed industries. Topics such as emissions management, adaptation, innovations and climate-related reporting were dealt with.
In addition to climate change, BMO spoke to companies about their measures to combat plastic pollution. Public awareness and thus business risks have increased significantly in the past year. The Responsible Investment Team urged companies to reduce the amount of unnecessary single-use plastic, improve the recyclability of plastic, find innovative solutions when redesigning packaging, implement circular economy models and improve the recycling infrastructure.
Social: 40 percent of the Active Ownership Agenda
Work practices are a hotspot in the area of social engagement. In particular, modern slavery, freedom of association and supply chains have therefore been brought into the focus of companies. The Responsible Investment Team also intensified the discussion of health-related issues related to sugar. Governments and the general public are paying increasing attention to the consequences of high sugar consumption. The Responsible Investment Team has worked with food and beverage companies around the world, encouraging them to incorporate regulatory developments and changing consumer preferences into their business strategies.
Governance: 40 percent of the Active Ownership Agenda
Well-functioning boards of directors are critical to long-term value creation. Therefore, the Responsible Investment Team continued to focus on the effectiveness of these bodies. This involved the appointment of boards of directors and the composition, diversity, renewal and evaluation of the boards of directors. Other governance areas deal with business ethics, internal controls and executive compensation. The engagement also promotes efforts by companies to develop innovative packaging materials and technologies.
Voting behavior in terms of active ownership
BMO voted against management in 24 percent of all AGM votes and against at least one resolution in 72 percent of meetings. When remuneration was up for discussion, almost 56 percent of the Responsible Investment Team voted against the management. In 2017 it was 47.5 percent. With regard to the election of the chairmen of the board of directors, the Responsible Investment Team cast its votes against management in 26 percent of all cases in 2018, which is a slight decrease compared to the previous year.
The Responsible Investment Team expects the following topics in the area of sustainable investment to become more topical in 2019: gender equality, protection of endangered workers, climate change, biodiversity, water and antibiotic resistance.
In 2018 there was encouraging progress on a number of topics that have long determined the agenda and thus the activities of our Active Ownership Team. It was a crucial year for the development and implementation of climate strategies. With the help of positive influence, we were able to achieve significant improvements. Success has also been achieved in optimizing working conditions, employee rights and in the fight against corruption. In 2018, we improved our understanding of how our Active Ownership approach can help achieve the Sustainable Development Goals. We have combined the Active Ownership Agenda with the Sustainable Development Goals in order to give our activities more importance within the framework of the corporate goals. As a result, we have created new points of reference and discussion content, which companies very much welcome.
Housing is scarce in Germany, and now an expropriation debate has flared up. Again, you could say. What is new, however, is that this time the debate will not take place in some ideologically charged back rooms of the universities, but will be carried out on the open stage by high-ranking politicians.
While it is hard to imagine that real real estate expropriation is legally enforceable, it could also take place through the back door by means of threats. Think of the initiative in Tübingen: Letters are sent to the owners of building plots there, clearly stating that the owners should build within four years and that the building application should be submitted in two years at the latest. If nothing happens, a fine is threatened first. If that still does not lead to the “goal”, the city is threatened with forcible sale. A table of market values is also included.
Expropriations do not create living space
One can only hope that the subject will peter out. As is well known, expropriation does not create a single square meter of living space. In addition, the discussion alone can lead to the booming construction industry getting a crack. If many private real estate investors, large or small, start to become hesitant due to the expropriation debate, sooner or later this will lead to a noticeable cooling off. As a result, even less living space would then be created.
Wouldn't it be a lot smarter to find instruments with which everyone can invest in the creation of new living space - even for small amounts and by no means just for personal use? In fact, you can already do this today, for example, by investing in open or closed real estate funds. However, today's instruments are particularly inflexible because they only offer very limited liquidity. The investor must therefore consider very carefully how long he really has the money left. In addition, commitments are associated with very high costs at all levels and closed fund variants can only be subscribed for relatively large sums.
Page two - tokenization in practice
A technical innovation is now emerging as a solution to this dilemma: real estate can be tokenized using blockchain technology. In this way, real estate investments are made possible by digital share certificates that can be divided as required. The special thing about it: Large parts of the costs incurred today are eliminated and investments are possible even for very small amounts. In addition, the digital share certificates are liquid, they will be traded on the stock exchanges in the future and everyone can part with them again if it suits them.
Real estate tokenization is already being implemented
Pure theory? Not at all: a few dozen companies around the world are in the process of implementing real estate tokenization in terms of technology and regulation. Just recently, Crowdlitoken AG, a company from Switzerland, issued a blockchain-based, digital bond approved by the Liechtenstein supervisory authorities. On closer inspection, it is mezzanine-like capital for real estate investments. Every single bond investor can put together their own real estate portfolio. In this respect, we are dealing with a digital and liquid fund replacement, in which the focus in the example mentioned is on office and commercial real estate. Similar blockchain products for residential real estate are already in the starting blocks. In this way, blockchain technology enables market-based, “democratized” property ownership.
Of course, this development is still a tender plant and the regulatory framework, especially in Germany, still has to be adjusted accordingly. Nevertheless, this example shows that technical innovations, in this case blockchain-based tokenization, could perhaps solve one or the other societal problem.
Incidentally, in response to an article on the subject of real estate tokenization, I recently received a message from a member of the Bavarian state parliament: "... our apartments do not belong in the hands of foreign investors, our apartments belong to the people." that the political leaders should perhaps focus more on understanding and promoting technical innovations and creating the necessary regulatory framework. A little less ideology would probably do our country quite well.
Media, politics and business often outdo each other in meaningful and meaningless depictions of generations Y and Z or the millennials themselves. Quite a few floors are baffled as to where and how investments should be made in the future in order to stay on the ball with the millennials. To do this, the decision-makers must know the world of these people and gain access.
With the Millennials, there is for the first time a whole generation that has grown up in a smartphone-Internet-Facebook-Instagram world. The members of this generation perfectly place a wish filter over things. They show people near and far how great life is. Millennials believe they can achieve things because they just want to. You have to learn to deal with these people and their needs. You have to give them guidance.
Only grown up at the age of 25
The study by researcher Jean M. Twenge of the University of San Diego shows that today's youth grow up later. This limit has shifted from 18 to 25 years. The trend can be determined regardless of gender, place of residence or socio-economic factors. In terms of activities, 18-year-olds are now like 15-year-olds were before. Teens now wait longer to take on more responsibility. One reason for this could be the helicopter parents. From birth you try to get the "best" out of it and control life down to the smallest detail.
40 percent poorer than parents
According to calculations by the Resolution Foundation, millennials in Great Britain earn significantly less than people a generation earlier. This is noticeable when building wealth. Millennials in developed economies have forty percent less wealth than their parents in their day, the IMF calculates. As a result, young people are less likely to acquire real estate today than they used to be. Another problem for young people: securing old age. The pension landscape has changed massively. Pension benefits have been cut in many states. Impending poverty in old age is mapped out.
Competition through loose dress codes
So far, different industries have, or have required, a certain dress code. Goldman Sachs is now relaxing its own dress code for employees. There is a good reason for that. Goldman Sachs aims to adapt the company culture to the younger employees. More than three quarters are millennials. A casual dress code is one aspect with which one can be attractive as an employer in this highly competitive industry. Goldman loosened the dress code for the technology and development department two years ago. That was necessary in order to be able to recruit good programmers. The competition from Google and Apple is particularly strong because the dress code there is particularly casual.
Rejection of the tried and tested
The first people who grew up with digitization will buy fewer cars. The status symbol on four wheels is deselected. A third of young people in large cities no longer get a driver's license. Young, urban people tend not to want to own a car because ownership narrows them and takes away their feeling of independence and flexibility. If so, they are more likely to buy a used car.
Side two - demand for consumer goods is falling
According to the Digital Commerce Magazine, it is already known that millennials need to be encouraged differently to spend money on jewelry, watches and the like. Online trade and luxury goods are still alien worlds. The trade in high-priced watches and jewelry is discovering the Internet in small steps, but at the same time has to think further. Because there is a class of buyers who no longer want to spend large sums in expensive shopping streets.
Ownership becomes less important
More and more young people do not want to own products, but rather share or rent them. For millennials, it's all about freedom. They do not want to be bound and restricted by consumption. They are turning to services called the “sharing economy”. Millennials would like companies to offer even more alternatives to buy in order to remain flexible. Such sharing or rental models are conceivable in many industries.
It is important that companies react to this zeitgeist of the younger generation. The development of new business models and the adaptation of the organization is initially an investment in the future. This transformation must inevitably be tackled, otherwise conventional business models will fail due to their inability to adapt.
What millennials spend money on
When millennials spend money, it is more for a great trip or a concert. They'd rather travel the world than buy a car. The money for carpooling and driving services, however, sits loosely with them. They also prefer to eat out and go out with friends than to put the money in a semi-detached house in the future. This consumer behavior is meanwhile also noticeable on the stock market. For example, the Green King brewery chain is growing in Great Britain because the company also offers pubs and hotels. In contrast, the index of large department store chains is falling. Airbnb, on the other hand, is now valued at over $ 25 billion, according to the Wall Street Journal.
The financial world has already partially reacted and is now offering blocks of shares that target millennial consumer behavior. That means: more adventure companies than classic consumer goods. The modern millennial consumer is definitely buying more life.
Business models for millennials
You sell canned happiness less and less to enlightened people. If you identify millennials as a target group, their urge for freedom should be reflected in business models, offers and flexible solutions. Today, for example, you can rent household or technical equipment for a monthly fee, and the contract can be terminated at any time.
Page three - Millennials want co-living and clear communication
Millennials want to live differently. Even if so far of minor importance, more and more living space is emerging that is tailored to so-called co-living. Examples are micro-apartments, Tini-Houses and similar shapes. These apartments take up very little space, partly because the kitchen and bathroom are kept small. The fewest compromises are made when it comes to the location of the apartment. For example, proximity to work is more important than for the rest of the population.
In the age of communication, paradoxically, we experience a lack of interpersonal communication. Companies that want to stay in touch with millennials don't just focus on technology, but also on communication skills. Millennials have completely different attention spans and are good at extracting information from short sequences. Millennials also get bored quickly. The type of communication is becoming more and more a business model. Millennilas want to be taken seriously. Empty phrases are seen through and voted out.
Get an overview of your options and think outside the box. Perhaps microloans in third world countries are more interesting than conventional forms of investment for millennials.
Investing in courage and emotion
Your clients may be asset managers and private bankers. But your customers are definitely 100 percent human. And your customers will sooner or later consist of the Millennial Generation. But these are often enough alone between bits, bytes and online. That's where you have to start. We humans need more faces, voices and personalities again. We need something real: tangible, tangible, ... or just sweat on the forehead.
Millennials will demand to be seen for who they are: social beings with a special story. You focus on life itself. Millennials buy, for example, experiences and travel (events, tourism), meaning and values (sharing idea, microcredits), living space and emotions (real estate by location, luxury).
It all fits very well, because doing business is only possible with emotions.
Bitcoin shows an increase of 27 percent for the past month (as of April 5, 2019). Ethereum achieved around 18 percent and Ripple around 14 percent. Double-digit price gains in the standard values of cryptos have not existed for a long time. It is noteworthy, however, that there has always been a plus in the past few months. After the violent crash, the cryptocurrencies seem to have at least found a bottom.
Rocket rise in Bitcoin
Some of them are repelling each other like a rocket: The second row achieved price gains of around 24 percent for Bitcoin SV, 31 for Monero, 39 percent for EOS. Stellar jumped 46 percent, Dash 52 percent, and Litecoin rose 56 percent. Then it will be three digits and we are still with cryptos, which show more than a billion US dollars in market capitalization: Cardano achieved 108 percent, Bitcoin Cash even 117 percent. In the case of the smaller ones, there was a clear improvement in some areas.
A really broad wave that at least provides some relief for insecure crypto investors. But the question is: how does it go from here? Was that the turning point? Is history repeating itself and cryptocurrencies are going through the roof again like they did in 2017?
Large cryptocurrencies are establishing themselves
The increase shows one thing: things are clearing up in the crypto market, the major currencies are establishing themselves. The fluctuation range for the top dogs is much smaller, they are traded and viewed like blue chips. So they offer comparative security, albeit with limited price potential. At least that may be the case in the short term.
Bitcoin, Ethereum and Ripple represent around 120 of a total of around 170 billion US dollars in market capitalization of all cryptocurrencies. They will continue to fulfill this role as the big ones, paving the way and setting the pace for the entire digital asset market. For investors, this means that there is a good chance that they have found the digital value stocks. Careful investments in these Big Three are definitely an option for those who expect the crypto market to develop further.
If you are looking for exoticism and disgust, you have to go to Sweden: Visitors to the Disgusting Food Museum in Malmö can taste foods that are unfamiliar to local palates until September 2019. These include, for example, durian, the famous stinky fruit from Thailand, or casu marzu, a maggot cheese from Sardinia. It is unlikely that the foods that are currently on display in Malmö will find wide acceptance in Germany at some point.
But one question undoubtedly calls for new ideas within global food production: How can we feed up to ten billion people in the world in the near future? According to the Food and Agriculture Organization of the United Nations (FAO), protein needs are estimated to increase by more than 300 million tons annually over the next three decades. The additional demand is mainly driven by population growth in Asia and Africa, as well as progressive urbanization. In the regions where demand is growing particularly rapidly, it is often hardly possible to expand the area under cultivation for grain and rice. In other regions of the world, the weather conditions are difficult. For example, extensive forests would have to be cut down; elsewhere there is simply a lack of the necessary infrastructure.
Fish meal production at the limit
As a result, it is not surprising that, due to the area restrictions, a large part of the additional protein requirement has recently been covered by the expansion of fish farming. While the world's oceans were overfished as a result, the aquaculture industry in particular has been able to continuously expand its supply in recent years. In Indonesia alone, the production volume in fish farming has increased almost sevenfold since 2009 to 31.9 million tons.
Here, too, the ecological balance is rightly criticized, after all, many aquaculture companies also use fish meal and fish oil in their fish feed. Accordingly, the problem of overfishing has hardly been alleviated in recent years. Thanks to the relatively low price level, many fish farmers are now switching to soybean meal. However, their fatty acid profile is insufficient. That is why completely new solutions are required.
Algae and insects as a food source
Given the options available, the most interesting thing seems to be to replace fishmeal with insects and fish oil with algae oil. A total of seven insect species have been approved for use in fish feed in the European Union since mid-2017. Several large-scale plants for the production of insect meal based on the "black soldier fly" will go into operation this year. The black soldier fly, originally from Florida, is particularly interesting because of its virus resistance. It thus fulfills important requirements in the context of food safety. In addition, insects are almost unbeatable in terms of greenhouse gas emissions, land and water consumption. The same applies to the production of proteins or fatty acids from algae. In addition to sunlight and CO2 Microalgae only need inorganic nutrients such as phosphate and nitrogen to grow. Compared to land plants, they also consume little water and no agricultural land. The utilization of the residual biomass as fertilizer or as an additional energy source helps to further reduce production costs.
Page two - new water systems enable sustainable fish farming
In addition, innovative water cycle systems (RAS systems) now enable shrimp and fish to be farmed professionally on land. While salmon had to be flown in from Chile or Norway to the USA or China in the past, land-based fish farms could make overly long transport routes to customers superfluous in the future. It is true that the investment volume required is considerable, as the US projects currently underway are each devouring up to 400 million US dollars; However, given the freight cost savings of around two US dollars per kilogram and the possible premium price in retail, the capital investment should pay off in the long term. Some of the US salmon have already been sold in advance to a large retail group. After all, regionally and sustainably produced foods are also increasingly in demand by consumers.
Sustainability is driving the trend
Current discussions about ongoing global warming and various animal welfare initiatives will undoubtedly increase the number of consumers who value a conscious and sustainable diet. This trend therefore requires a rethink, also from listed food companies. According to the market research company Mintel, even 53 percent of US consumers approve of plant-based foods a better ecological balance compared to the animal-based comparison offers.
It is not just vegans who are making the new lifestyle more suitable for the masses. There is no other explanation for the hype in the USA about the new plant-based burgers. The meat substitute produced on the basis of pea or soy proteins is not only finding its way into thousands of supermarkets there. Even one of the leading fast food burger chain chains recently added the meatless alternative to its range.
The competition for this is artificial meat from the laboratory. However, it hardly does justice to the idea of sustainability, if only because fetal calf serums are needed for the production. The blood of cow fetuses is the main component of many foods.
In any case, consumers pay more attention to the ingredients of food. The production of health-promoting and more easily digestible foods consequently requires the increased use of natural additives. In return, artificial preservatives and flavor enhancers as well as synthetically produced flavors, sweeteners and colorings are being dispensed with more and more. A rethinking can also be observed in the USA, where the use of natural ingredients has been slowed down for a long time due to the lower requirements for food labeling. Natural food colors are now gaining in importance here too - despite the significantly higher purchase costs.
With the increased interest in a healthier diet, foods rich in carbohydrates and pure dairy products are also becoming more and more out of fashion. Just doing without gluten or lactose often leads to a better attitude towards life for many consumers, even though no specific intolerance has been diagnosed. Against this background, the “Frei von ...” range has been growing at an above-average rate for years. Lactose and gluten-free foods in particular are continuously gaining market share. In some cases, however, other products are also attracting new attention in this context, for example goat milk. In addition to the so-called A2 milk, i.e. cow's milk with a compatible casein structure, the latter is in high demand for baby products, especially in Southeast Asia. In addition to the above-average growth rates in these new market segments, the price premium that can be achieved here is also interesting from a company or investor's point of view.
Page three - organic greenhouses in cities
It is therefore not surprising that larger dairies are expanding their product range in such a way that, in addition to normal milk powder, they also market significantly more valuable by-products such as lactoferrin or highly concentrated whey proteins. This increases your own added value significantly.
The never-ending wave of fitness has been promoting the purchase of protein snacks and drinks for years. This trend towards “healthy snacking” is particularly pronounced in the USA, where capacity bottlenecks are currently not uncommon.
Organic cultivation under artificial light
New cultivation capacities are also to be developed in the organic segment. While in the beginning the organic range outside of the specialist trade consisted mainly of fresh products such as eggs, milk and fruit, organic finished products are now also gaining massively in importance. Accordingly, the market for organic products in this country is growing by around ten percent per year.
It should be clear to everyone that organic potatoes from Egypt should be less in demand with regard to the ecological balance. Urban greenhouses with artificial light are therefore often presented as a solution for the future. The fact that there is no need for pesticides and the reduced use of fertilizers and water make the concept very attractive. Unfortunately, the high energy costs currently still lead to a cost disadvantage of 200 to 300 percent - which so far can only be compensated profitably in cities like Tokyo or New York through higher sales prices.
Rely on innovation drivers
In conclusion, from an investor's point of view, the glory days of the food corporations, which in the past relied solely on size and market power, have been over since the advent of Internet trading. Rather, the shares of companies in the food and agricultural sector appear interesting, which either offer innovative solutions in production or animal feed production or occupy new, growing market segments. In the “DJE - Agriculture and Food” equity fund, we therefore mainly focus on food stocks whose management recognized the importance of increasing social awareness of sustainability and health at an early stage. In general, the potential of many innovations in the food market is still rather underestimated. This offers corresponding opportunities for the investor.
The technology sector is becoming more dynamic. It is only a matter of time before companies or private individuals have to decide whether they want to be responsible for all data storage and the associated IT infrastructure, including security aspects, or whether it would be better, safer and cheaper to outsource it to third parties.
This is where the cloud comes in. The cloud is about the decentralized storage of data and the ability to access this data anywhere and anytime. So the way leads away from the company's own server rooms or the external hard drive at home to gigantic data centers, also known as server farms.
Technology and industry implement the cloud
The technology and industrial sectors have certainly already taken the first steps towards moving applications and data to the cloud. The offer was initially aimed at smaller companies such as start-ups. Independent and extensive data storage is very demanding for them. Storage capacities (including backups) are to be built here. The same applies to access by different end devices at different locations, as well as to the associated security technology. In the meantime, this technological development has also spread to large companies and private individuals.
In a narrower sense, the cloud is actually just a data storage technology. In order to be able to offer this in the desired or required breadth and quality, the cloud must be considered a little further. For investments, the focus is on the following value chain: It begins with the producer of the storage media, the networks and their hardware and continues with the operators of the data centers. Manufacturers of components are also interesting because they are often used in various data centers and are therefore market leaders. The value chain also includes the protection of data and applications in the cloud. This relates to both the security of the data in the data centers and the security of the various endpoints from which the cloud is accessed. Among other things, there are specialized providers with software and hardware solutions.
Side two - capacities of the cloud underutilized
After high outsourced storage capacities have been built up in data centers in recent years, this first, dynamic cycle has largely been completed. The capacities of the cloud are high and far from being fully utilized. That's because the technology created a hype. Almost every company worldwide has dealt with this topic. Based on this euphoria, cloud providers have positioned themselves and continuously adjusted their own forecasts upwards. In the USA and China in particular, a lot of money has been invested in building the relevant infrastructure. But it has now been shown that a “move” to the cloud is often not that easy.
Some companies are not ready for the cloud yet
The market is now relatively saturated and our company discussions have shown that some companies are not yet ready to move their data infrastructure to the cloud. One company, for example, reported to TBF that it had checked all of its almost 2000 applications for their cloud capability in a large project. In the end, only twelve of these applications could be moved to the cloud. The example shows that technology has its limits and that much-lauded freedom has its limits. Large providers of cloud storage solutions are now openly talking about an upcoming optimization of the existing data centers. Another building block has been added to the value chain. This is the software for optimizing storage capacities and for more efficient communication both within a network and in combination with the cloud or the data centers themselves.
The majority of start-ups and software companies use the cloud to access their data quickly and from anywhere. Many other companies are still having difficulties storing their data in a decentralized manner. The new mobile communications standard, on the other hand, ensures more data is collected and thus more data is collected, stored and processed. This can lead to cloud technology evolving. However, there is still a long way to go before a standard has been reached that justifies a major expansion of storage capacities. The same applies to the possible uses. Many suppliers have arrived at the bottom of the facts and so some of them are still producing on stockpile. The company's own outlook from cloud providers is therefore often based on hopes.
TBF believes that this excess capacity will only slowly be compensated for by corresponding demand. First of all, disillusionment is likely to spread, and negative numbers are likely to be reported here and there. As already mentioned, a second, dynamic cycle is likely to begin in connection with 5G. But that shouldn't happen before 2020 or 2021.
Page three - mobile devices shape technology
As previously described, security is also an important issue when discussing the pros and cons of cloud technology. States are placing ever higher demands on the standards for data acquisition and storage, so that this market is growing and developing. In this context, providers of these services must meet the highest standards, but every company must also deal with them and implement high-quality solutions.
Users have inhibitions about the Internet of Things
This is an important issue, especially when using mobile devices, and affects companies and private individuals alike. Many potential users of the cloud have inhibitions when it comes to networking end devices (Internet of Things, IoT). Here, too, data generation, communication, storage, evaluation and application are decisive topics. In the meantime, even household appliances, house doors or cars are equipped with the technology and send data to their manufacturers. This also shows how closely many topics of the technological revolution are linked to one another. Risks arise that one must be aware of, that must be classified and minimized. In addition to the users, the manufacturers are primarily responsible for this.
The IoT includes constant communication between many devices and continuous data processing. So all devices have to be compatible. In order to be able to guarantee this, software providers are required who act as interpreters. With this sub-topic and the security aspect explained above, there are always companies that are suitable for an investment. To this end, TBF Global analyzes these companies and assesses their developments as best as possible. TBF Global currently sees this less as a short-term boom and more as a medium-term development. It should therefore only be incorporated into a portfolio with care.
Cloud has growth potential
In conclusion, TBF Global believes that the technological development of the cloud has reached an initial stage of maturity. It is currently taking a breather, but there will be further growth potential afterwards. For investors, this means that the absolute valuations of stocks are very high and they should only use investments well dosed. But there are also companies whose stocks are too expensive, but whose bonds are reasonably priced and offer an interesting coupon.
At TBF Global, the topic of the cloud is finding its way into several funds. On the one hand there is the equity fund TBF Global Technology, combined with a risk overlay, or the defensive mixed fund TBF Global Income, which is geared towards constant distributions. In the end, it remains important to be close to the market. You have to accompany the developments of technology and companies and decide within the scope of portfolio management where and in what form you want to invest. Then it will show what happens in and above the clouds.
Technology stocks now make up a fifth of global market capitalization. Almost half of the 20 largest listed companies in the world are now in the technology, media and telecommunications sectors. Against this background, it is hardly surprising that the opinion is often circulating that this plant species is overrated. We do not share this view, but are counting on above-average growth that has not yet been priced in by the market. Numerous titles are still undervalued as their potential is not yet known. In addition, this industry is also interesting because it has a wide range so that the right share can be found for every type of investor. Technology “eats” its way into all areas and drives change forward: from health care to public institutions to retail. We have identified five subject areas with above-average potential:
Ultra-fast mobile networks
The starting shot for the new 5G mobile communications standard will be given this year. This means that a thousand times larger amounts of data than before can chase through the mobile networks at a transmission rate of up to 10,000 megabits per second - a hundred times faster than the current 4G LTE standard. For the first time, corporations want to use this technology, so that completely new industries and services emerge. The new networks are to become the central nervous system of the factory of the future. Devices and machines will exchange data directly with one another without the need for the infrastructure of a cellular network provider. The market is growing rapidly: 1.5 billion 5G contracts are expected worldwide by 2024.
Big business e-gaming
E-gaming has developed into a billion-dollar market and has long since outgrown the status of a niche. Changes in user behavior, such as increased mobile use and technological innovations, are causing disruptive upheavals. For some time now, large e-commerce players such as Amazon & Co. have been trying to gain a foothold in this area. The forecasts are gigantic: the e-sports subsector alone - according to a study by PWC - is expected to double to 1,600 million US dollars in the next four years.
Cloud services - high cost savings
Less and less is stored on the hard drive. Rather, companies are increasingly switching to cloud computing in order to save costs in the long term. The cloud business is booming - and offers IT service providers, IT equipment suppliers and software providers numerous opportunities. According to analysts, global sales with the digital cloud are likely to increase from $ 200 billion today to $ 500 billion in 2026.
Digital media growth area
The media sector is also very promising. Very few young people today sit in front of the television set. Instead, they use their iPad or laptop to watch Netflix, Amazon Prime or YouTube. As this young generation gets older and has more purchasing power, the advertising money flows away from traditional print media towards Internet-based media. This is already happening at a low level - and offers correspondingly high growth opportunities. Two companies in particular are likely to be among the big winners: Google / Alphabet and Tinder.
Self-learning systems and intelligent software are revolutionizing business life in the long term - the topic of artificial intelligence is well on the way to becoming a megatrend. We assume that the number of intelligent algorithms will increase rapidly, because the exponentially increasing amount of data must be processed and steered in the right direction. According to PWC, the growth potential by 2030 is $ 15.7 trillion. Big data is the new oil of the economy - and those who use the data correctly are at the top. Investors should, however, take a closer look: Artificial intelligence offers above-average investment opportunities. But it is currently a hype topic - which is reflected not least in some inflated stock valuations.
Global warming as a result of climate change will have a significant impact on the returns for institutional investors. If the temperature rises above two degrees Celsius, significant negative effects on returns can be expected in the medium term. However, by focusing on sustainable investments, these effects can be cushioned. These are the results of the new study "Investing in a Time of Climate Change - The Sequel", a new edition and further development of a Mercer report published in 2015.
The study looks at three scenarios for climate change: average warming of two, three and four degrees Celsius compared to pre-industrial levels. These are considered over time periods up to 2030, 2050 and 2100 in order to show the effects of natural disasters and resource availability. Investors can use the evaluations to record the financial risk of climate change in relation to their overall portfolio as well as across all asset classes and industrial sectors and act accordingly.
Investors must actively work towards the two-degree Celsius scenario
“A central conclusion of our new study is that investors must actively work towards a two-degree Celsius scenario and should also see this as an opportunity. In almost all asset classes, regions and time periods, our analyzes show that the expected returns in the two-degree Celsius scenario are significantly better than with a warming of three or four degrees.In addition, the necessary transition to a low-carbon economy and society offers new investment opportunities, ”said Helga Birgden, Global Business Leader, Responsible Investment, Mercer. “According to our model considerations, greater consideration of sustainable investments in the portfolio can improve returns. The results of our study are very clear and reinforce the conclusions of our report from 2015 that everything must be done to achieve a scenario well below two degrees, ”explains Birgden.
German investors are increasingly focusing on sustainable investments
"We see a significantly increased interest in sustainable investment solutions, across customers from pension funds, pension funds, but also from insurance companies and other institutional investors," said Charles Goettmann, Head of Investment Solutions Sales at Mercer in Central Europe. “Climate change not only demands an individual contribution from European investors, but also offers attractive investment opportunities. In the area of sustainability and especially in the area of impact investing, there are strategic opportunities to adapt globally diversified portfolios to future developments and to participate accordingly in global shifts. "
Investors play an active role in shaping the future
The Mercer study gives investors a clear framework for action in order to take an active role as “future maker” and help shape a transition to a two-degree scenario. The “Future Makers” described by Mercer in 2015 are committed to business plans based on the two-degree scenario in those companies that are exposed to business-damaging risks in the transition to a low-carbon economy. They are also putting pressure on governments to quickly move on to implementing the Paris Agreement and also to deal with climate change.
“This topic is to be understood as a fiduciary duty. It's about risk management, as described in a report by the World Economic Forum 2019. Asset owners and managers should look at climate change throughout their investment process, from basic philosophy to investment policies and processes to portfolio construction, ”said Deb Clarke, global head of investment research at Mercer.
Under the leadership of the Responsible Investment Team, Mercer deals with the issue of climate change across all business areas. The Responsible Investing Pathway shows the full range of services on offer aimed at integrating sustainable investing into the fundamental steps of the investment process: philosophy, guidelines, processes and portfolio implementation.
Last year was marked by strong earnings and GDP growth, driven by tax cuts and fiscal stimuli. However, we already assumed slower growth in 2019 at the turn of the year. With the market rally, stocks are a little overvalued today. At such a late point in the business cycle, valuations should actually be lower.
There is a change at the American Central Bank (Fed). This gives the appearance of slowing down restrictive monetary policy. As a result, bond spreads have narrowed. Overall, bonds are appropriately valued, but there are significant differences between different countries, as the global credit cycles are very poorly synchronized. While the USA and Canada are in the expansion phase, China and Brazil are already in the repair phase. While overweighting carries risks in the former phase, the latter is suitable for long-term investments.
Secular risks also offer opportunities
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