Please find below our interim Investment Market Update as at 19th February 2021.
This week we consider our third theme of the month, Robotics and Artificial Intelligence. However, before doing so, let’s have a quick look at what’s happening across the markets.
Blue Sky Investment Market Update
The pound has strengthened
One of the main movers of the week has been the strength of sterling against other currencies, notably the US dollar with the exchange rate now being 1.40, having been 1.37, just five days ago. For UK denominated assets, this has been good news but for our portfolios, particularly the likes of the Foresight Global Infrastructure which invests circa 45% in the US, it has eroded capital in the short-term. We don’t see this as a lasting problem, and this has been reinforced by the fund management team at Foresight.
Why have we seen the pound rising?
Despite the UK having a faltering economy, there is optimism around the progress of the vaccine rollout programme, which suggests that the economy could come roaring back quicker than expected and ahead of the likes of the EU. The key for the pound moving forward from here will be the speed of the economic recovery.
Gold is losing its shine
It just shows how important it is for us to monitor and evaluate individual asset classes. Gold had attracted lots of money during the first lockdown but from the 1st April 2020 the price has been in decline compared with the equity markets as optimism has improved.
As reported on Bloomberg this morning, the precious metal started the year with lofty expectations on the back of a record high and its biggest annual gain in a decade. Now, it has had its worst start in 30 years, with bullion for immediate delivery, falling to a seven-month low.
Despite the dollar weakening in relative terms to the pound, on a stand-alone basis, the dollar has proved to be surprisingly resilient, helped by a rally in US treasury yields. Analysts are also pessimistic, with CMC Markets saying that the prospect of rising interest rates is bad news for a non-yielding asset like gold.
A fairly benign week once again, although the FTSE 100 was powering ahead until yesterday when it fell by 1.4%. It looks like traders and analysts are taking a pause and digesting the current state of play before deciding on the next move. Data will play an important part in any short-term movements as the reaction of the pound clearly demonstrates.
Robotics and Artificial Intelligence
As I stated in my blog this week, the world has changed in many ways. Whilst some sectors have been left on the sidelines, others have surged and innovation and development has been compressed into a number of months instead of years.
Undoubtedly, technology has been a winner in this crisis.
As usual, much of the technology we are now using has been developed over recent years, but the practical applications have accelerated, particularly online. Yet with an avalanche of orders and an unreliable workforce due to Covid -19 infections, companies are fast tracking their use of robotics and automation. Capital expenditure in this area was hampered because of the uncertainty but we see a strong theme here which attracts our attention.
It’s early days for us in terms of investing directly in this area, but we recently incorporated the Sanlam Artificial Intelligence fund (ex-Smith & Williamson fund) into our most adventurous portfolio, known to many of you as the Blue Sky Momentum portfolio.
The following text is a combination of information from RoboGlobal, Legal and General Investment Management and our take at Blue Sky, as to what is unfolding in this space.
Factory automation will boom in 2021
RoboGlobal expects the installation of factory robots to exceed 3.2 million units by the end of 2021, double the level of 2015. However, this is still a tiny fraction of the global human workforce in manufacturing of 360 million people.
As the global economy recovers from the pandemic, expect to see significant upside and double-digit growth over the next 5 years. This will be driven by:
- Technological advances
- The digitalisation of production systems
- An increase in worker shortages
- Significant adjustments to the impact and effects of Covid -19.
The world’s top industrial robotics providers are Fanuc, Yaskawa, ABB and Kuka which together command nearly 75% of the global market. Fast growing collaborative robot specialist are also key players and are key suppliers of factory automation components.
Of course, it’s no surprise that Asia is leading the way with China the biggest buyer of industrial robotics. They alone have installed more than Europe and the Americas combined.
Interesting though, in terms of density relative to manufacturing plants, China’s traction is half the density already seen in Japan and less than a quarter of the developments in Singapore and South Korea.
Logistics and warehouse automation to soar
It will be no surprise either to hear that the pandemic has significantly altered the global supply chain. Companies are going to require their providers to offer much greater agility, financial stability, transparency and speed. Many are seriously considering ‘insourcing’ at least a portion of their logistic operations.
RoboGlobal expect to see a new surge in warehousing demand, especially for temperature-controlled warehouse space as more consumers order food online. It is understandable that consumer goods suppliers are looking to increase safety stock inventory whereas before the pandemic the opposite was true because it was cheaper to keep inventories lean.
The anticipated changes will require a greater focus on efficient management with many specialised services involved, which is expected to drive industrial activity.
Sales of autonomous mobile robots are estimated to double to $27 billion by 2025. This and other tech solutions are well positioned for a vigorous recovery.
I have to say, this is not something I’ve ever thought of until recently; but when you watch the nature programmes on TV the use of drones is superb… but indoors?
Niche markets are now developing autonomous drone systems which can be adapted by manufacturers and warehouses to scan bar does for inventory management. It is expected that the commercial applications for indoor drone systems will grow rapidly.
Artificial Intelligence influences our lives now but, without doubt, it is going to play a big part of our future across the following areas and more:
- Finance/personal banking
- Social media
- Online shopping
- Mobile use
- Factory automation
- Driverless cars
- Commercial flights using an AI autopilot
As we have seen throughout 2020, the boundaries between home and office have become somewhat blurred. Not just with in the physical sense but also when it comes to disruptive innovation in cloud, data storage and Artificial Intelligence.
Undoubtedly there is going to be a boom in digital transformation to improve busines continuity and agility. The fallout from the pandemic meant network security companies were kept very busy and we expect this to accelerate as we move further into 2021.
Ecommerce to become an immersive experience
I’ve read a lot recently about how digital commerce is seeking to replicate key elements of the traditional shopping experience. The solution, it appears, is to apply technologies like augmented reality, 360 video, 3D content and virtual reality… still with me?
Mind blowing isn’t it!
Already, Augmented Reality (AR) has been proven to reduce product returns and increase the reach of marketing across social media platforms. RoboGlobal believe the potential impact is immense.
In 2020, ecommerce surged in the US to 30% of total retail sales, up from 19% in 2019. This is happening fast.
The pace of change is frightening.
- Mobile services that are integrated with social media, online marketplaces and backend payment platforms are helping reduce friction throughout the purchasing process. Something the FCA needs to embrace I believe!Customer experience is becoming a key differentiator.
- Consumer media has thrived and will continue to do so due to a growing number of cloud-based platforms. Thanks to the development of AI, the gaming industry is poised to transform how we consume our digital experiences in ways we could not have previously imagined.
- The investment into autonomous systems for commercial vehicles has been accelerated due to the pandemic too. The detail is mind blowing and I have to say, a mere novice like me, finds it hard to comprehend but the deployment in 2021 will increase as will demand.
- Virtual care has been much talked about in a telemedicine context, but this is only a small part of virtual care. The opportunities are huge, and it promises to transform how we monitor and respond to our health.
The next 10 years will see our lives transformed. Change may be uncomfortable at first, but if we embrace it, then it can open the door to all types of exciting opportunities.
As with Sustainability and Infrastructure, the themes in my two most recent Market Commentaries, there are huge walls of money being committed to new developments and here at Blue Sky we want our clients to be part of it through our carefully thought-out investment strategies.
Enjoy the warmth at the weekend.
Gary and the Investment Team
Please Note: This communication should not be read as giving specific advice regarding your personal circumstances. This would only be given following detailed assessment of your individual needs. The value of investments may fall as well as rise; you may get back less than invested. Past performance is not necessarily a guide to future returns.