Profiting from digital disruption

CI's Malcolm White is bullish on components, the cloud and commerce.

Diana Cawfield 13 July, 2017 | 5:00PM

The acceleration of digital technology will disrupt every industry, says Malcolm White, co-manager of CI Signature Global Science & Technology Corporate Class, and the winners will be digitally driven companies.

"The media sector was the first sector to be completely upended, in industries such as newspapers, movies and television," says White. "What's happening here is an acceleration across other businesses. Every organization is going to be a digital industry, whether you're a trucking, mining, financial, medical company or some other."

For example, White points to the online retailing giant  Amazon.com Inc. (AMZN), which has bought the bricks-and-mortar grocery chain  Whole Foods Market Inc. (WFM). By using an Amazon Go mobile app, shoppers can enter a Whole Foods store, pick up their groceries and leave the store with no line-ups and no check-outs. The app will automatically record their purchases through sensors and artificial intelligence (AI). White says this microchip-driven technology will bridge digital companies with the real world.

The Signature team, part of CI Investments Inc. in Toronto, employs a thematic, macroeconomic approach as a key element of its global stock-selection process in the technology sector.

"We are hard-core technologists," says White, who recently went back to university part-time to study AI and to gain new insights into the technology. The managers promote academic pools of research to develop the best analytical frameworks, with a five-to- 10-year view, on how companies will morph into digital businesses.

White and his colleagues are bullish on companies involved in the "three C's" of technology: components, the cloud and commerce, where the digital economy is driving demand and growth.

Samsung Electronics Co. Ltd. (SSNLF), a diversified electronics company based in South Korea and among the fund's top-10 holdings, is a great example of the components industry, says White. "Samsung is not just a smartphone manufacturer, but a vital component supplier to U.S.-based  Apple Inc. (AAPL), a multinational technology giant and currently the fund's top holding."

As for cloud computing, White says there is massive construction under way of cloud data centres, which are digital global warehouses that can store and process information. " Arista Networks Inc. (ANET)," a U.S.-based company and recent addition to the fund, "is a big 3% position in our mandates," he says. "Arista provides a lot of the cloud networking equipment to these data centres that are benefiting from the cloud trend."

The third "C" is commerce, since cloud computing is bringing down the cost of doing business. "I can get an entire computing infrastructure and the electricity for 30 cents," says White. Digitally savvy companies are taking advantage of these low costs to launch new services. White cites as examples his holdings in Canadian-based Shopify Inc. (SHOP), a cloud-based commerce platform, and Hong Kong-based  Alibaba Group Holding Ltd. (BABA), an online commerce provider.

The three C's often dovetail with one another. "It's what we call the new technology stack," says White, "but it's the digital industry stack. Every industry is going to look like this."

For example, the fund holds  BlackBerry Ltd. (BB), a Canadian wireless-solutions provider which is developing sensors for the trucking industry. "The mining industry is talking about going to robotic mining. The future of financial services will be your smartphone," says White. "Medical technology can now do a scan of parts of the body and convert that to a three-D printed biological part. Numerous other innovations are expanding across industries."

In the technology sector as a whole, "if you look across the universe, we've got dozens and dozens of double-digit growers," says White. "They've benefited from the macro picture and the secular growth picture as well."

White says there have been a lot of stories concerning worries over high valuations in the technology sector, and he acknowledges that some of these concerns are valid. "There's the problem of people gravitating to the winners and those trading at really high valuations," he says. "In the portfolio context, it's something that can be managed."

White credits his co-manager Jeremy Yeung, currently doing due diligence research in Europe, for contributing to the fund's strong performance, which includes a 40.6% return over the past 12 months ended June 30. Over the past 10 years, the fund's average annual return is 12.7%, and White expresses optimism that investing in technology will continue to be profitable.

In fact, he makes a bold assertion: "If you think of our thesis of the big getting bigger and better, it's very reasonable to think we can surpass levels that we achieved in the dot-com days."

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Alibaba Group Holding Ltd ADR200.00 USD3.23
Amazon.com Inc1,740.48 USD-1.15
Apple Inc265.58 USD1.47
Arista Networks Inc191.65 USD-1.06
BlackBerry Ltd7.08 CAD-0.84
BlackBerry Ltd5.37 USD-0.92
Samsung Electronics Co Ltd2,210.00 USD-3.07
Shopify Inc A479.25 CAD-2.35

About Author

Diana Cawfield

Diana Cawfield  Diana Cawfield is an award-winning writer who has been a regular Morningstar contributor since 2000. Her numerous publication credits include the Toronto StarAdvisor's Edge and Chatelaine, as well as the Canadian Securities Institute's online educational services.