But they added that they viewed the generally tough economic climate being experienced by many such companies right now as a longer-term positivefor investors in this spaces as the present macroeconomic turbulence is likely to play a role in helping investors understand which companies are the winners and losers from the changes which occur.
The fund manager added: “Much like the razing of a forest, damage has been done. For some companies, the damage, whether the consequence of unsustainable business models or an overreliance on cheap access to capital, will be fatal. For some, the damage is painful but survivable, for others, the changed landscape marks a significant opportunity.
"Like fungi, companies evolve in response to the environment in which they find themselves. In the past year, we have seen a clear shift in the portfolio toward profitable growth. Companies continue to invest in the future, but they are cognisant that the path of progress is less likely to be funded by others.”
Following the science
Aviva Investors' Saldanha cautions that whatever the level of potential growth associated with an innovative investment theme, valuation still has to be important.
He added: "NVidia is a company where the potential for it to gain from widespread adoption of AI is obvious. But the share price has tripled, so we would prefer to look for companies where there is less hype, but one can also get exposure to the theme.
"And quite often the best way to do this is to invest in the companies that supply the AI businesses. If we see an exciting theme, we look at the whole supply chain, who supplies ChatGPT, and who supplies that supplier, and that way we can avoid having to try to pick winners in sectors where change is happening very rapidly.”
He is also keen on other innovative sectors, such as life sciences.
He says: “During the pandemic, there was a lot of focus and hype around the life sciences sectors, and the potential for new drugs. But more recently, a little bit of the hype left this sector, and that is creating opportunities. Again though, rather than trying to pick winners from among the drug companies, we are trying to focus on the companies which supply those companies, so that one doesn’t have to try to pick the winners.”
James Klempster, multi-asset investor at Liontrust, has a different view.
He told FTAdviser that one echo of the dot com bubble which resonates with him now is that: “any company that seems to be able to claim it is an AI company, immediately gets a share price boost, almost regardless of the fundamentals of the company, or whether AI is something that can deliver improved returns in the medium term. That’s not meant as a criticism of the technology or its impact, it's more about the investment case.”
