The Dawn of a More-Connected, Data-Driven World

Global Equities

The Dawn of a More-Connected, Data-Driven World

What are the key themes likely to shape markets in 2019?

We invest around mega-themes that play out over years, so what excites us for 2019 is the same that excited us in 2017 and 2018. The unstoppable march toward the cloud continues. This is a long-duration theme given the cloud’s current 10% global penetration. Investors must determine the pace of the shift and what multiple they are willing to pay, but the recurring nature of cloud revenue streams leads us to believe that steady cash-flow generation is not a distant promise. Devices are becoming more connected and smarter as wireless tiptoes toward 5G deployment. Rhetoric on how artificial intelligence (AI) can improve business outcomes across all industries is at a fever pitch. We believe that there is not a boardroom worldwide that is not discussing the strategic imperative of its digital transformation. Emerging themes that may evolve into headwinds are the U.S.-China trade dispute and growing calls to regulate large Internet platforms.

Where do you see the most important opportunities and risks within your asset class?

The consequences – intentional or otherwise – posed by the U.S.-China trade dispute deserve everyone’s attention given how tightly coupled these economies are. While semiconductors are integral to our favored themes, the sector is seeing parts of its global supply chain upended. Some companies control their destinies as they stand to increase the value of their content. Others, with more commoditized chips, are reliant upon volume for growth, something that may be difficult in a slowing economy. The Internet also faces a potentially bumpy road. In China, the rise of the consumer and the digitization of the economy remain powerful forces, but recent steps to limit Internet gaming creates a more uncertain environment. Within the U.S., we expect heightened calls for regulatory oversight of Internet companies on security and privacy concerns. This may, however, prove advantageous for incumbents as they have a greater ability to comply with more rigorous standards compared to smaller challengers.

How have your experiences in 2018 shifted your approach or outlook for 2019?

Nothing occurred in 2018 that altered our view on the themes reshaping the technology sector. If we could jump ahead 12 months, we would be confident that the cloud, the Internet of Things and AI would have advanced considerably. Acute developments over this past year, however, have caused us to expect that the range of potential outcomes for several tech companies has widened. Semiconductor makers are navigating a more hostile trade environment; Internet companies could come under near-term earnings pressure as they build out more robust security and privacy capabilities. And all tech companies may face a global economic slowdown. We cannot control macro events. That is why identifying companies that we believe have the best management teams and operating models is hardwired into our investment process as these firms should have the most control over their destiny. History tells us that secularly advantaged tech companies nearly always exit downturns in even stronger positions.

Key Themes
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Disruptive Forces

Geopolitical Theme Small Icon | Janus Henderson Investors

Geopolitical Tensions

"The unstoppable march toward the cloud continues. This is a long-duration theme given the cloud’s current 10% global penetration. Investors must determine the pace of the shift and what multiple they are willing to pay, but the recurring nature of cloud revenue streams leads us to believe that steady cash-flow generation is not a distant promise." – Denny Fish, Portfolio Manager

FEATURED FUND

Global Technology Fund

We believe tech markets are complex, adaptive systems with emergent properties and unpredictability. The Fund is managed with special attention to downside risk.

What else do our experts see for the year ahead?

Staying Focused on Secular Growth
As interest rates and inflation pressures climb, Portfolio Manager Doug Rao says it is becoming all the more important to focus on companies with secular tailwinds, pricing power and competitive advantages.

Innovation in Health Care
The health care sector is experiencing a rapid pace of innovation, a trend that Portfolio Manager Andy Acker says is likely to continue in 2019 to the potential benefit of investors.