Q. Are there any key trends that stand out in your investment space?
Steve Maarbani (SM): Across the board, there is greater interest and demand for investments that have purpose and sustainability at their core. When Rio Tinto destroyed an Aboriginal sacred site in order to expand its WA coal mine earlier this year, many investors chose to sell their shares to distance themselves from the business. This is just one example of how investors are demanding opportunities that are good for humanity and company founders, as well as their bank balance.
When it comes to trends that are tied to different sectors, investors are seeking opportunities to back companies and products that they believe in. Health and wellness, renewable energy and industries that support the reduction of poverty are popular right now, and businesses in this domain are set for a stellar period of growth.
Stew Glynn (SG): There are limited global events, such as COVID-19, that impact and enforce such widespread change in the lives of people across the globe. This creates a rare opportunity for entrepreneurs to adapt and provide exciting new technology solutions and products that address shifted needs.
Once COVID-19 is conquered, certain behaviours may revert to prior days, but there will be changes that stay on. As an investor, the key is trying to understand which trends are permanent and which ones will pass.
Some current key areas that have experienced material changes include:
- eCommerce solutions have been rapidly adopted and applied to every purchase touchpoint including groceries, restaurants and direct to consumer fashion and furniture.
- Communication work tools such as Zoom and Microsoft Teams are seeing major boosts to user numbers and the emergence of cloud-based work tools.
- In the healthcare space, there has been quick adoption and fast-tracking of telehealth to triage illness and reduce COVID-19 spread.
Q. What are the top 3 things investors should consider before investing in emerging spaces and trends?
- Learn what a company’s sustainability plan is and ensure that the investment is aligned with your personal values.
- Always back the jockey and not the horse. No matter how amazing the idea is, assess the capability of the management team from the get-go before choosing to support a business.
- Make sure that the investment has secure intellectual property via copyright protection or patent registration. An investment must be protected by this so that competitors are unable to copy what makes a business or product unique.
- The depth and skillset of the founding team – Do they have unique insight, experience and grit to pursue ambitious problem sets?
- Market opportunity – It is often challenging to understand the size of obtainable and addressable markets. Some can be expansionary, such as Uber or Airbnb, both of which managed to create new markets. Others may be Software as a Service (SaaS) based, such as Canva, which might be looking to take market share off incumbent players in native desktop tools, such as the Adobe suite.
- Market timing – Often the question to ask is, why now? Too early and the technology or market adoption may be before its time. Too late and the opportunity is already being pursued by better-funded competitors or incumbents.
Q. What changes in investment behaviours have you seen since the pandemic?
SM: The pandemic has reminded us that our world is fragile and now more than ever, we need to look after it. At the start of this year, investors sat on their hands and avoided spending money unnecessarily for fear of the possibility of a challenging economic climate. When the economy didn’t implode in the way that many thought it would, there was a renewed drive to back sustainable and ethical businesses.
We’re fortunate in Australia that the economy is beginning to pick up again after the initial blow of COVID-19, and the investment community is regaining its appetite for high growth businesses that can offer high returns. In part, this can be attributed to high flying investors reducing their spending on things like air travel and other activities that were prohibited during the lockdown, and the better than expected economic turnaround bolstered by government spending and initiatives.
SG: There is currently a greater appetite for technology investing. Public markets have shown a run towards fast-growth technology players such as the majors ie: FAANGs but also on the NASDAQ, which is an index skewed towards smaller cap technology growth stocks. This shift has been witnessed because technology adoption has escalated across many verticals given the flux and change created by COVID-19.
Investors have also extended their investment range outside of their cities and regular travel locations. They are now willing to make investments without meeting in person which expands their addressable investment market considerably. This is illustrated by the fact that we are now seeing international investors from the US and Europe entering the Australian market in search of great ventures to support.
Q. Why do you think this is?
SM: Investors are looking for high growth opportunities that are driven by a strong sense of purpose. The pandemic forced the world to come together in a way that has never been done before, and for the first time in modern history, every single person on the planet was impacted in a similar way. We were forced to deal with the pandemic as a collective, which has caused many to shift their perspective and look at ethical investments which run counter-cyclical to traditional investment options.
SG: Technology has outperformed every other asset class thanks to the shifts COVID-19 has brought. The NASDAQ, which is heavily weighted as a technology exchange, has outperformed the Dow Jones, which is more industrial focussed, by more than 20% this year. This really demonstrates investor interest in tools and services that are being utilised during the COVID-19 period for both work and play.
International investing is also showing a great potential for returns in emerging markets with large technology players being built out of Latin America, South East Asia and Africa. Further saturation in the larger, mature markets will mean more opportunity to take known solutions or business models and adapt them for domestic markets.
Q. Any advice for investors moving forward into 2021?
SM: My main advice would be not to accept suboptimal returns on your investment dollars. With a large range of innovative companies and alternative assets on the market, many traditional investment opportunities – such as bonds and equity shares – just don’t stack up by comparison. There are amazing entrepreneurs across the country doing great work, and it’s important to seek these people out and uncover how you can get involved in supporting them.
SG: Considering the enormous amount of change we have witnessed this year alone; be adventurous with where you are placing your interest and time. Often, opportunity lies off the beaten track.
It would also be best to exercise caution on the entry point of valuations. Yield is currently much harder in mature markets, there is an abundance of capital available and investors are pushing further up the risk curve in search of better returns. This means that valuations are running higher than historical norms and may not reflect long-term sustainable levels.
Main image source: Shutterstock (WAYHOME studio)
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