If you’re concerned robots are going to take your job…

Then make sure you own the robots. Rian Brand on Sygnia’s 4th Industrial Revolution Global Equity Fund.

NASTASSIA ARENDSE:  Every Tuesday we do an Investment Unusual, and today we are looking at the Sygnia 4th Industrial Revolution Global Equity Fund. It was first launched late last year and it gives investors exposure to global companies that are playing in the Fourth Industrial Revolution space.

This is my conversation with Rian Brand, who is the fund manager of that particular fund.

RIAN BRAND:  I think we are moving into a new phase of development, essentially. We had the First Industrial Revolution, which was brought on by steam engines – with all the economic upheaval that came with that. Then came the Second Industrial Revolution, where we saw steel and oil and electricity starting to be used in the manufacturing industry and mass production, with all the upheaval that came with that.

From about the 1980s we’ve had the Third Industrial Revolution, which was first the PC and then the internet and ICT – Information Communication Technology.

The Fourth Industrial Revolution essentially still builds on that. It brings in those technologies and is embedded within society and the human body. What we are seeing more and more is that humans are becoming a part of that ecosystem, almost. It promises to completely transform our lives again in the same way that the previous three industrial revolutions have transformed our lives.

On the one hand there is a huge amount of angst about it – more machines take over our jobs and our lives. But on the other hand it’s a fantastic opportunity as well, as some people put it. If you are concerned that the robots are going to take your job, then make sure you own the robots. That’s the theme where we find ourselves currently.

NASTASSIA ARENDSE:  I suppose if you are an investor or a listener, somebody who is taking heed of what you are saying right now, you are giving people the ability to take their money and co-mingle it with some of the world’s greatest companies that are in that space with you in the Fourth Industrial Revolution.

But start off by telling me a little more about it, and how is it different from your traditional global equity funds.

RIAN BRAND:  We do not go and select individual stocks. What we do is we partner with Kensho, which is what we call a data company. What they do is they have an incredibly large database that they work, using artificial intelligence and query, and they can address very specific event questions to the database. So they’ve got a product specially geared towards that.

But as a subset of what they are doing there, with all this data that they’ve put into the structured database, they can also create indices around specific themes. Now in the past we’ve always had it that a single company is in a single category – for instance, if you are a resources company and specifically a gold mining company, that is where the company is, and that is where you get classified. But if you happen to also have exposure to, let’s say, another base metal, the share would not get included in that index.

What Kensho has said is that no, rather than looking at the companies and individually putting them into one index, let’s look at the themes. You get in our database a natural language recognition, we go and find which companies have exposure to those themes specifically.

For instance, autonomous vehicles have a certain set of features that they look for specifically, and then they will go and find not only the Teslas of the world, but also companies that have exposure indirectly – for instance through the artificial intelligence and the silicon that they provide, for instance in NVIDIA. Strangely enough, NVIDIA chips are very well suited to be used in artificial intelligence, and therefore they get a very large exposure to those kind of applications. So NVIDIA, for instance, is included in the autonomous vehicle index that Kensho has done. Kensho has 16 indices in different industries. For instance there is a spacing index, there is an autonomous vehicles one, cybersecurity, home automation, virtual reality index, and all these different indices.

What Sygnia then does, we invest in those indices. What we do do is we would mix the exposure to the individual indices inside the fund. So we wouldn’t go and decide what must be in a specific index. But we would, for instance, decide that we feel that at the moment robotics has a higher chance of good returns, and we would invest slightly more in that – I should probably not use the word “feel” there because we also use algorithms to do that. We have our own proprietary algorithms that we just run against these indices. That is how we create the fund. So the result is you have a very, very broad-based fund specifically targeted to these different technologies. We have in excess of 250 shares in the fund, where we would be fairly focused on specifically these new technologies.

NASTASSIA ARENDSE:  The fund was launched last year. How has it performed?

RIAN BRAND:  Very well. As you and your listeners would be aware, the technology companies have been doing very, very well in America specifically. So since inception the fund up until last month has had a 32% return. Even month to date we are already sitting up 4.7%. So we are seeing that theme is doing very, very well.

That said, we also need to realise that it is a very specifically themed fund and therefore it is a fairly high-risk fund. So this is not something that one wants to put one’s entire savings into. But there is definitely an opportunity to get exposure, at least to some part of one’s portfolio.

NASTASSIA ARENDSE:  Looking at the top ten holdings that you have in the fund, how have they changed over the past, say, three or six months or so in terms of weighting

RIAN BRAND:  In terms of weighting, what we have found is that we actually have a slightly less concentrated portfolio now than we had about six months ago. Six months ago we had a fairly large exposure to something like GoPro, the largest holding in the fund. We have seen that certain parts of for example, wearables have come down, and therefore GoPro has also come down. But we still find, for instance, that NVIDIA, which has exposure to different indices at the same time, is still the second largest – sorry, not according to the latest fund fact sheet. That also is a theme that we are seeing – that a lot of the semiconductor manufacturers have quite a large holding in the fund, which is not something that you would expect by default.

But because a lot of their products get used in a lot of different places in this industrial revolution, we see that they actually have an incredibly large economic exposure that then feeds through to the fund.

NASTASSIA ARENDSE:  What should investors be thinking about when they are looking at a fund like this, and thinking the technologies that Rian is talking about are technologies I like, and I believe where they are going. What should I have at the back of my mind when it comes to these new technologies?

RIAN BRAND:  I would find it very exciting. I do find some of the progress that we are seeing very, very exciting. But at the same time I think we also need to realise that it’s not called a revolution for nothing. It is going to cause some discomfort. As financial planners would put it, your human capital – in other words, what you would still be able to earn for the rest of your life – may be affected through these new technologies, and this could be a chance for you to diversify or hedge against that specifically. In other words, if the value of your employment gets lowered by these technologies, at least you have this fund and it increases in value then. That is one way of looking at it.

NASTASSIA ARENDSE:  Thanks so much for your time today, Rian.