In 49 BC, Julius Caesar brought his 13th legion over the Rubicon river, a ‘point of no return’ that precipitated the Roman civil war and led to him becoming the first Roman emperor.
Alex Gunz, manager of the $144.9m Heptagon Future Trends Equity fund – a strategy investing in business with exposure to long-term future trends – argued that is an apt metaphor for the embracing of digitalisation that has occurred since March.
“From video conferencing to online purchases, digital has become the default,” said Gunz. “We doubt there is much turning back from this point. Future trends are accelerating in both pace and intensity and the fund is well-placed to benefit from them.”
Gunz said the pan-thematic process of the fund allows for diversification across a broad range of themes including alternative energy, food innovation and healthcare solutions.
But it is digitalisation that has clearly dominated during the Covid-19 pandemic.
“It is absolutely imperative when you consider future trends in the broadest possible sense of the word to try and differentiate between hype and reality,” he said.
Performance of fund vs sector & benchmark YTD
Source: FE Analytics
Digitalisation has been a key theme of this pandemic, greatly benefiting technology and cloud-based companies.
In April, Microsoft chief executive Satya Nadella said, “we have seen two years’ worth of digitalisation in two months,” as employers were forced to adapt legacy systems to the cloud to ensure their employees could work effectively from home.
And staying at home fostered an increasing dependency on online ordering and digital social interaction.
“We may well look back on this unique period as a clear tipping point,” said Gunz.
The manager said less than 3 per cent of food and beverage purchases in the US were made online pre-pandemic. By the end of March this figure had reached close to 40 per cent.
Considering cases around the world continue to rise and as more restrictive measures are put in place, this trend is unlikely to desist.
PayPal and Mastercard have been two stand-out beneficiaries of the Covid-19 crisis and Gunz (pictured) sees this particular trend continuing.
“Mastercard’s biggest competitor is cash,” he said. “By volume, no more than 25 per cent of all payments are currently done electronically.”
The manager noted that bringing unbanked people into the financial community is the key.
“Globally, fewer than 15 per cent of all consumer purchases are made online,” he explained. “In other words, the runway ahead is substantial.”
Since the fund’s inception in 2016, the investment philosophy has been centred around pan-thematic diversification and identifying those businesses that are ‘out-innovators’.
“We only invest in pure-play businesses,” he said. “Only in market leaders and companies that out-innovate through their research and development efforts.”
Nevertheless, it can be difficult when investing in future trends to differentiate between long-term shifts and short-term fads.
Gunz continued: “By having a robust process, with top-down themes to bottom-up stocks, and if your rigorous in that respect than you won’t get sucked into the hype.”
The manager said the current environment is especially suited to active and differentiated strategies such as his.
“The fund has 20-25 names in it, we have active share of over 95 per cent and a tracking error of over 7 per cent,” he said. “You can’t get more active than that.
“The starting point for the fund is to identify long term future trends that I think will grow in importance broadly regardless of what happens to GDP, and where governments and regulation are tailwinds for the industry rather than headwinds.
“If you’re thinking about the future, you’re not going to be investing in themes such as conventional fossil fuels, gambling and alcohol.
“By virtue of having a concentrated portfolio, if we have concerns about corporate governance, we simply didn’t invest in that business.”
Gunz also noted that environmental, social & governance (ESG) has become a new ‘gold standard’ for investment consideration, something that Heptagon Future Trends Equity has covered.
“Thinking about the future trends we’re invested in, things like alternative energy, cashless society, ed-tech, they naturally align with ESG,” he added. “Many of the themes in which future trends invest naturally align themselves with an ESG initiatives.”
Performance of fund vs sector & benchmark since launch
Source: FE Analytics
Since launch, the offshore Heptagon Future Trends Equity fund has made a total return of 127.89 per cent compared with a 76.43 per cent return for the MSCI World index and a 61.09 per cent gain for the average FO Equity – International peer. It has an ongoing charges figure (OCF) of 1.36 per cent.