Market commentary: Apr 2024

Investment performance

Investment returns for the year to 30 April 2024 have been good with international equities doing most of the work. Developments in Artificial Intelligence (AI) and strong company earnings in the United States are driving share prices higher. However, looking at the year ahead, investment markets are facing a high level of uncertainty. When will inflation return to normal? Will there be an economic recession? When will interest rates come down? All fascinating to ponder but it’s far more useful to study long term trends and events that have the potential to change companies, industries, and economies. One of these trends is disruptive innovation...

Disruptive innovation

Understanding global trends is critical for successful long-term investing. Disruptive innovation is top of mind for us (and our fund managers) as it’s having a fundamental impact on the global economy and global markets.

Disruptive innovation is often driven by rapid advancement of technology that transforms products and services. Amazon disrupted the retail book market by developing an online platform which removed the need to visit a physical bookstore. It then rapidly expanded into other markets. Uber disrupted the taxi industry by providing a cheaper and more user-friendly transportation option.

What does disruptive innovation mean for investing?

Disruption is getting faster. In the early 1990s the World Wide Web took 7 years to reach 100 million customers, compared to Instagram that took 2 years and 6 months 2009/2010, and Chat GPT took only 2 months in 2022. The speed of growth reflects faster information flow and the increasing willingness for people to change their media consumption and buying habits.

It also reflects the advantage of a small number of technology companies who have immense capital. They can quickly develop disruptive technology creating significant barriers to entry providing space to further enhance their technology and expand into new markets. Good examples are semiconductor developer Nvidia and the ‘big three’ cloud computing providers - Google Cloud, Microsoft Azure, and Amazon Web Services.

Not all companies will be impacted equally. There will be winners and losers. Our fund managers follow a robust investment process to identify winners that will succeed in this rapidly changing world.

The future is never certain. Our approach is to put the market ‘noise’ aside and focus on the timeless principles of investment – diversification, discipline, and focussing on the long-term goal. Part of this is understanding long term trends like disruptive innovation. Other trends that we think about are de-globalisation, demographics, and debt.

Richard Grimes, CERTIFIED FINANCIAL PLANNER (CFP^CM), Director and Financial Adviser