The popularity of ‘big data’ has grown in recent years, with ever greater numbers of people searching for large data sets and increasing awareness of the investment benefits, according to Jacques-Aurélien Marcireau, manager of the EDRF Global Data fund. 
“We are surprised over the last five years by the magnitude of the exponential growth from this generation from connected devices, cell phones etc, but in a few years’ time we won’t be surprised anymore,” he said.
The offshore fund was specifically set up to take advantage of new developments in the data space, focusing on companies that receive or collate a vast amount of data and use this to provide services to its clients.
Since its launch last year, the fund has returned 40.60 per cent, beating the MSCI World (32.84 per cent) and the FO Equity Tech Media and Telecom sector (31.59 per cent).
Performance of fund vs sector and benchmark since launch
Source: FE Analytics
As well as being a top quartile performer since launch, the fund has sat among the top five funds in the sector over one, three and six months and over the past year.
The €76.3m (£64.4m) fund does not only focus on technology stocks, but invests more broadly in firms able to take commercial advantage of global data trends. Below, Marcireau outlines four companies that he has invested in and explains why they exhibit the characteristics of a ‘big data’ company.
Alphabet
The first is a fairly common stock among technology portfolios and will be high up on many investors’ lists when asked to come up with an example of a ‘big data’ company.
Alphabet, the parent company of internet giant Google, has one of the largest collections of data in the world thanks to its unassailable lead as the search engine of choice for many internet users.
The issue therefore for Marcireau is not whether he should own the company, but whether or not the value makes it attractive.
Indeed, the S&P 500 Technology index has outperformed the S&P 500 over the past five years, with many companies such as Facebook on price-to-earnings multiples in the mid-20s.
However, Alphabet has been growing its earnings and Marcireau says the firm remains attractive at its current prices despite rising 146.21 per cent over the last half a decade.
“I’m not convinced that the US market is overvalued per se. I would say that if you take for example Alphabet you are trading at 19 times earnings next year and if you strip out the cash it’s even lower than that for a fast growing company.
“I would not say that by any means Alphabet is expensive,” he said.
Performance of indices over 5yrs
Source: FE Analytics
He adds that the market is not really fairly representative of the tech industry, with some companies on valuations at all-time highs while others that present real growth opportunities remaining on multiples in the mid-to-late teens.
Alphabet is currently the largest holding in the fund representing 7.9 per cent of the portfolio.
Square
Marcireau’s next example is American payment technology company Square, which was co-founded by current Twitter chief executive Jack Dorsey.
At its core, the company makes chip and pin terminals for smaller-sized business in the US who until recently have been slow on the uptake of credit and debit card machines in their stores.
“When you are a small merchant in the US you are one person among 20+ million that do not accept card. It’s too complicated and too expensive,” Marcireau said.
The company essentially gives these companies a terminal for free and takes a commission (around 2 per cent) for every transaction made on the device.
“It’s very transparent – it’s not cheap – but it’s not a pile of small fees that you don’t know where it’s coming from,” he said.
“What Square sees in real-time is how much they sell through the card terminal. So it knows if the business is doing well or not.”
Through this, the firm is then able to offer strategic loans through the terminal based on the data provided and the fee is increased so the client can start to repay this loan.
“They made lending available to small companies easy and efficient making something economically viable that wasn’t previously and for me this is a nice innovation,” Marcireau said.
Currently the firm has more than $1bn loaned out to more than two million merchants that own the terminals.
The manager said: “Building the terminal was just an excuse for building this whole stack of services whereas other companies were selling the terminal so making money on the hardware – they could have done this a long time ago but didn’t have the mind-set.”
The company which has a market capitalisation of $4.8bn according to Google Finance, listed in December 2015 and later fell creating an attractive entry point for investment.
“The company was love at first sight but the valuation was not okay – I could not make it work on a five-year timeframe so I had to wait and then when the stock was crushed earlier this year we jumped into it quite heavily,” explained Marcireau.
JP Morgan Chase & Co
Moving away from the traditional tech sector, the fund is also invested in JP Morgan Chase & Co, representing a 2.7 per cent of the fund.
Marcireau said: “JP Morgan is an interesting one because for me they combine everything I love about traditional companies that are visionary enough.”
“The CEO and the management team were spot on very early on the impact of fintech and new technology 10 years ago and they have been monitoring it ever since.”
“Then they were very active in pre-empting the trends and understanding them. If you look at the stake JP Morgan has taken in private equity in fintech over the last 10 years they have always invested in the most successful company.”
“And what is interesting about that is when you are a big financial company you have stakes in the small newcomers that are very innovative you have a vision on their roadmap so you know where they are going and how they work so you can better defend yourself or buy them when the time comes.”
He adds that JP Morgan has acquired a huge amount of data, which it has been able to sell on with new products available to the bank should it wish to do so.
“JP could come up with very interesting products leveraging all the data that they have in-house,” the manager said.
“But to get to that you need to invest, you need to have vision to make it happen and it needs a management team that understands the necessity to bring it all together. It’s very tough to find a company that has all this.”
Medidata
The final example of the fund’s approach to big data investing is in the pharmaceutical sector, where he holds US firm Medidata Solutions.
Counting 20 of the top 25 pharmaceutical companies as clients, the firm helps with the logistical process of taking a drug from inception to commercialisation by digitising the trial process.
“When one of these pharmaceutical companies are doing research and development to develop new drugs, they’ve got to go through several iterations and go through all the testing phases,” Marcireau said.
“It’s a complicated process that used to be done by paperwork until five or six years ago.
Medidata have created software to help big pharma companies increase efficiency of research & development processes.
“By doing that and being the stand-out of the industry, not only are they becoming a real part of the value chain but they can use the knowledge they have about their customers to help them be more efficient in their workflow.”
Additionally, the company has now developed a product to help prevent fraud in test centres by reviewing the data and analysing it if any results do not coincide with the research already undertaken.
“They are a small niche player between software and healthcare doing value added services and becoming a leader in this niche,” the manager said.