Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 360

Disruptive technology is fast-forwarding into the future

Global lockdowns have accelerated the adoption of new technologies. The digitalisation trend has moved forward with a leap, benefiting from the stay-at-home measures to deal with the coronavirus pandemic and the boost these gave to e-commerce, remote working and other tech areas. Satya Nadella, Microsoft’s chief executive officer, referred to “two years of digital transformation in two months”.

We see several key trends:

  • Adoption of cloud computing: Growth is driven by the need for remote working, online entertainment and telemedicine. Other factors include mass notification systems (MNS) and the remote provision of services. In terms of MNS, we have seen more and more governments use them to send emergency communications to one or many groups of people. And with much of the world in lockdown, services providers have been using augmented reality (AR) through customers’ smartphones to identify and troubleshoot problems remotely.
  • Acceleration of e-commerce: Visa recently reported that in Latin America, the number of people using Visa credit card online increased by 20% (13 million people) in one quarter.
  • Digital payments: Similar to the above, there has been a rapid increase in ‘card not present’ transactions. This is a card transaction, made either online or by phone, where the card is not physically present.
  • Uptake of 3D printing: Thanks to the often flexible and local nature of 3D printing, individuals and companies have taken to using it. As a case in point, Cisco employees have been producing face shields for healthcare workers.
  • Automation: In addition to, say, robots in factories, there has been growing interesting in software to automate customer services and other business functions.

Future investment strategies

Uncertainty remains, both about the duration of the pandemic and the severity of the recession. Stock markets might be too optimistic about the timing and strength of an economic rebound. Our strategy is to stay focused on our secular growth themes of cloud computing, artificial intelligence, data analytics, automation and the Internet of Things (IoT).

We aim to maintain a balanced portfolio by owning defensive positions that could fare well during periods of heightened volatility and companies that have sustainable business models and exposure to long-term secular growth themes but may face a more challenging short-term outlook.

To this end, we hold slightly higher cash positions at the moment and remain flexible to buying stocks linked to the above themes should their valuations come down due to volatility.

The opportunities in coming months

The pandemic and resultant economic recession shine a spotlight on societal issues where technology can create solutions:

  • Inequality – especially via better access to broadband and financial services and banking.
  • Renewable energy – harnessing solar and wind energy to power the data centres behind the cloud.
  • Increasing the capacity of the healthcare system – technology can monitor a patient’s health at home while telemedicine can help to treat the sick at home.

We are currently going through a period of profound change that offers numerous opportunities for investors to position their investment portfolios for further growth in disruptive technology.

Innovation is not just technology

A promising strategy should interplay the latest developments from solid players across diverse sectors, and capture performance that is sustainable both in financial and ESG terms. For example:

  • ‘Disruptive technologies’ do not all fall within the tech sector.
  • Real innovations exceed sector barriers, providing investment opportunities that purely sector-based strategies may miss.
  • Targeting companies that are sustainable in both the environmental, social and governance (ESG) and the financial sense, i.e. with high ESG standards as well as robust business models that ensure competitiveness and growth.

Our disruptive technology strategy looks for stock ideas throughout the economy and is not limited to the technology sector. For example, say we own Amazon because of its strong position in cloud computing, even though the stock is classified in the consumer discretionary sector like other retail companies. The stocks we would pick can be found in sectors as diverse as industrials, communications services, healthcare, financials, consumption and energy.

In addition, we monitor emerging technologies, such as 3D printing, blockchain and renewable energy. We can take exposure through stocks in related fields rather than directly targeting niches. So, cryptocurrencies can be represented by providers of powerful semiconductors that enable rapid calculations.

In cloud computing, we invest in both the large companies that provide cloud infrastructure services, as well as companies that provide software applications as a cloud service.

One can invest in artificial intelligence and data analysis via the financial services and healthcare sectors. Finally, the Internet of Things can involve sometimes unforeseen applications. Stories are proliferating of people saved by their internet-connected watch allowing for a rapid medical diagnosis.

A better world or the best of worlds?

We believe that the use of machine-learning algorithms will create economic value by making long and complex processes more efficient and by providing enhanced decision-making tools. However, there are pitfalls. The effectiveness of any algorithm depends on the quality of the data used to train the artificial intelligence.

For example, genetic data has historically been biased because it was primarily sourced from non-diverse populations of European descent. In addition, AI for facial recognition can be misused by governments and other actors to invade privacy or to create fraudulent videos. This illustrates the need for regulation to ensure proper use of these powerful tools.

Beyond moral and technical considerations, the question of abuse of dominance arises when one looks at (the giants of) technology. It has given rise to debate about the need to regulate or even dismantle companies. We are actively monitoring stocks that are exposed to the threat of tighter regulation.

Investment managers should take an active, fundamental approach to investing in disruptive technology trends. We meet companies, suppliers, customers, competitors, industry experts, academics and others to enhance our knowledge of the changing technology landscape.

The right time to invest?

Looking at valuations, technology stocks are currently trading at a 10% premium to the broader market based on a forward-looking 12-month P/E ratio. This is in line with the historical median since 1995. We believe this premium is justified by the superior growth prospects of the technology sector.

The current macroeconomic and geopolitical environment is highly uncertain. Most of the sectors we invest in, including technology, industrials and consumer discretionary, are cyclical. However, we believe investing in companies with strong secular growth drivers makes sense across cycles. Even in the event of a sharp slowdown, we expect companies not to freeze all of their technological investments but focus on the more innovative parts of the industry.

Accordingly, we view disruptive tech investing as a long-term (three-to-five-year) strategy, which involves keeping a close eye on the changes that can arise rapidly in this field.

 

Pam Hegarty is a Senior Portfolio Manager and equity analyst for disruptive technologies at BNP Paribas Asset Management and based in Boston.

Some sections of the above appeared in The Intelligence Report, 15 October 2019.

This information is issued by BNP PARIBAS ASSET MANAGEMENT Australia Limited ABN 78 008 576 449, AFSL 223418. The information published does not constitute financial product advice, an offer to issue or recommendation to acquire any financial product. You will need to seek your own advice for any topic covered in the article. Investing in specialised sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).

 

RELATED ARTICLES

Business model disruption has barely begun

banner

Most viewed in recent weeks

Australian house prices close in on world record

Sydney is set to become the world’s most expensive city for housing over the next 12 months, a new report shows. Our other major cities aren’t far behind unless there are major changes to improve housing affordability.

The case for the $3 million super tax

The Government's proposed tax has copped a lot of flack though I think it's a reasonable approach to improve the long-term sustainability of superannuation and the retirement income system. Here’s why.

7 examples of how the new super tax will be calculated

You've no doubt heard about Division 296. These case studies show what people at various levels above the $3 million threshold might need to pay the ATO, with examples ranging from under $500 to more than $35,000.

The revolt against Baby Boomer wealth

The $3m super tax could be put down to the Government needing money and the wealthy being easy targets. It’s deeper than that though and this looks at the factors behind the policy and why more taxes on the wealthy are coming.

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

The super tax and the defined benefits scandal

Australia's superannuation inequities date back to poor decisions made by Parliament two decades ago. If super for the wealthy needs resetting, so too does the defined benefits schemes for our public servants.

Latest Updates

Planning

Will young Australians be better off than their parents?

For much of Australia’s history, each new generation has been better off than the last: better jobs and incomes as well as improved living standards. A new report assesses whether this time may be different.

Superannuation

The rubbery numbers behind super tax concessions

In selling the super tax, Labor has repeated Treasury claims of there being $50 billion in super tax concessions annually, mostly flowing to high-income earners. This figure is vastly overstated.

Investment strategies

A steady road to getting rich

The latest lists of Australia’s wealthiest individuals show that while overall wealth has continued to rise, gains by individuals haven't been uniform. Many might have been better off adopting a simpler investment strategy.

Economy

Would a corporate tax cut boost productivity in Australia?

As inflation eases, the Albanese government is switching its focus to lifting Australia’s sluggish productivity. Can corporate tax cuts reboot growth - or are we chasing a theory that doesn’t quite work here?

Are V-shaped market recoveries becoming more frequent?

April’s sharp rebound may feel familiar, but are V-shaped recoveries really more common in the post-COVID world? A look at market history suggests otherwise and hints that a common bias might be skewing perceptions.

Investment strategies

Asset allocation in a world of riskier developed markets

Old distinctions between developed and emerging market bonds no longer hold true. At a time where true diversification matters more than ever, this has big ramifications for the way that portfolios should be constructed.

Investment strategies

Top 5 investment reads

As the July school holiday break nears, here are some investment classics to put onto your reading list. The books offer lessons in investment strategy, financial disasters, and mergers and acquisitions.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.