Dear fellow investors,
Thank you for being part of this journey with us.
Although 2023’s macroeconomic headlines have been impactful (think inflation, cost of living, and international conflicts), it's crucial to note that headline news often revolves around short term events.
In these environments there is a tendency to undervalue the importance of individual trends and the business opportunities that arise.
The past year was a reminder: innovation waits for no one.
2023 witnessed the beginning of a recovery for growth-oriented strategies.
This shift has been driven by several potentially impactful trends such as Artificial Intelligence (AI) prompting the market to consider long-term opportunities rather than focusing solely on short-term risks.
Despite macroeconomic challenges, our Where the World is Going (WWG) methodology, and emphasis on trends rather than the macro economy, persists.
What does WWG stand for again?
As a reminder, the Spaceship Universe and Spaceship Earth portfolios invest in companies we believe fulfil our Where the World is Going methodology.
In addition to the WWG methodology the Spaceship Earth Portfolio aims to invest in companies that have or are expected to have a positive impact towards the advancement of one or more of the 17 identified goals of the United Nations Sustainable Development Goals (UN SDG) agenda (refer to the Spaceship Earth Portfolio PDS and Spaceship Voyager Reference Guide for more information).
WWG's investment methodology revolves around identifying and capitalising on trends, steering away from immediate market challenges to concentrate on future opportunities.
Our approach also underscores the importance of companies possessing competitive advantages or moats, the potential for significant growth over a five-year horizon, and management that demonstrates careful management of capital and sound long term decision making.
You can think of the four parts of the WWG methodology as:
- Trends
- Moats
- Returns
- Management
As of the year-end, we believe the Spaceship Universe and Spaceship Earth Portfolios embody these principles.
The two trends that shaped 2023
We believe there are two pivotal trends that have influenced both Spaceship Universe and Spaceship Earth portfolios and the broader market in 2023, and we anticipate continued impact in the years ahead.
The first trend:
Artificial Intelligence (AI), the buzzword of the year.
AI remains a key force shaping trends for the Spaceship Universe and Spaceship Earth portfolios.
These portfolios remain strategically positioned for AI with our emphasis on data ecosystems, recognising that a robust AI strategy requires a comprehensive data strategy.
AI is the ability of software to mimic human decisions and reasoning by spotting patterns in data. It then uses machine learning and deep learning to make predictions about what will happen next, and learn from its mistakes.
This means AI needs data to grow and be effective. More data is being generated than ever before, by everyone from consumers watching YouTube videos and listening to Spotify, to businesses using analytics to upsell their customers.
According to the latest estimates by Statista in December 2023, 328.77 million terabytes of data are created each day, and this figure continues to grow.
Our portfolios encompass diverse segments of the AI value chain.
Presently, hardware and semiconductors are enjoying favourable outcomes, and we have exposure through Nvidia. We foresee software, which we have exposure to through Microsoft and Snowflake, reaping benefits in the coming year.
Despite the considerable attention it receives, current generative AI expenditure stands at a modest 1% of total technology spending, which is money spent on purchasing, maintaining, and improving technology for consumers, businesses, and governments.
However, according to Bloomberg Intelligence data from June 2023, projections indicate a significant upswing, with expectations of reaching 10-12% by 2032, as depicted in the accompanying chart.
Our AI perspective remains the same.
We think AI is likely to further entrench the current tech leaders such as Microsoft, whereas during the mobile era in the early 2010s, it was new technology that enabled the emergence of companies such as Uber and Airbnb.
Traditionally, leaders at the forefront of one technological era were not likely to lead the next transition. However, in the present AI and data landscape, we think there exists a significant probability that well-established entities like Microsoft will enhance their position further by leveraging data to enhance their services.
*Keep in mind that although these trend projections and forecasts are based on what we believe are reasonable assumptions, as with anything, there’s no guarantee they will come to pass.
The Ozempic weight loss effect
Some of the most impactful trends are a confluence of multiple trends converging together at the same time.
In the healthcare sector, the combination of social media and weight loss drugs has led to a significant healthcare catalyst.
Earlier this year, our portfolios benefited from our inclusion of Eli Lilly, particularly with its brands Mounjaro for diabetes and Zepbound for weight loss.
However, the impact of this trend on our overall portfolios has been mixed.
The expectation of advancements in obesity reduction has led to a downturn in several healthcare companies. Investors are concerned that widespread weight loss might reduce obesity rates, consequently limiting the potential market for some healthcare providers.
While we consider this an interesting perspective, our position is that these drugs act as treatments rather than cures, necessitating continuous use for weight loss maintenance.
Interestingly, there are indications that these drugs may have anti-craving effects, potentially reducing the consumption of alcohol and snacks, which suggests there are potential further use cases for the medication.
We've observed what we consider to be other interesting analyses from market commentators, from suggestions to invest in airlines under the assumption that a leaner population would save airline fuel costs, to speculation about the potential expansion of the customer base for companies like Lululemon due to weight loss drugs.
As always, we believe the truth lies somewhere between these extremes and eagerly anticipate the opportunities this trend will bring.
We see Australian healthcare, particularly ResMed and CSL, as presenting some of the most promising opportunities. The uncertainty surrounding the impact of weight loss trends has resulted in what we believe to be indiscriminate selling of company shares by retail and fund investors, without due consideration of individual company circumstances.
For example, ResMed brought the CPAP machine, which treats sleep apnea, to the world in 1989. Sleep apnea is associated with obesity, but it’s not its sole pre-condition. It's also crucial to highlight that in this sell off of company shares we think investors are disregarding the absence of ResMed's second-largest competitor, Philips, from the market since 2021 due to an FDA recall.
The FDA recalled Philips' product due to concerns that the sound abatement foam in their masks could potentially degrade, posing risks of injury and even death. We think this absence positions ResMed favourably in the market.
As for CSL's core blood plasma business, the impact is expected to be minimal. However, weight loss drugs could potentially affect CSL's trial research, which has specific focus on cardiovascular problems. Despite this, we do not perceive it as materially impacting CSL's overall business.
Where the World is Going in 2024
As the market transitions its attention from present challenges to future opportunities, we believe the Spaceship Universe and Spaceship Earth portfolios are well positioned to capitalise from several multi-year period trends with developments such as AI and weight loss still in their early growth phases.
As we look ahead, we remain focused on long-term, secular trends and the opportunities they present.
Thank you again for your ongoing support.
Some of our Spaceship Voyager portfolios invest in Nvidia, AMD, Microsoft, Snowflake, Uber, Airbnb, Eli Lilly, Lululemon, Resmed, and CSL at the time of writing.
Important! We’re sharing with you our thoughts on the companies in which Spaceship Voyager invests for your informational purposes only. We think it’s important (and interesting!) to let you know what’s happening with Spaceship Voyager’s investments. However, we are not making recommendations to buy or sell holdings in a specific company. Past performance isn’t a reliable indicator or guarantee of future performance.
