What is the race for turtles and why does it impact investors
We have become surrounded by AI but how will companies really benefit and what does it mean for their investment appeal, asks Lindsay Scott, investment manager at Walter Scott¹.
AI is an over and misused term these days, with machine learning having been around for a lot longer than the recent attention it gets would suggest, says Lindsay Scott, investment manager at Walter Scott. That said, in some areas there are true innovators within AI, those companies who have strategically considered its application and, somewhat surprisingly these are not necessarily the ‘new’ companies that have emerged from within the technology surge of recent years. Instead Scott points to two case studies from within Walter Scott’s portfolios.
Sample taken: AI leaders in 277 companies, across 7 sectors and 15 countries in Europe.
Pharmaceuticals is one of the least affected areas when it comes to the pervasion of technology, according to Scott. “The industry still uses the six-minute walk test to diagnose respiratory ailments – a test that has been around since 1963.” Data and patient privacy, particularly around drug trials, is one of the reasons for technology’s slow advancement. Often patients are reluctant to share their information, resulting in inaccurate or incomplete medical records – so-called dirty-data, explains Scott. “Drug trials need to curate the data in order to use it and yet they have difficulty even sharing information; 80% of data that is collected is never even used. This market is ripe for disruption and while there are some brilliant innovators in this industry out there, some call it the race of the turtles.”
Novartis is one such company bucking the trend, according to Walter Scott. Entering a number of digital projects and partnerships, the company has also examined industries outside of pharma to readdress how it is structured and for tips on how to maximise patient efficiency.
Few would anticipate that a 110-year-old company with 38 international brands would become one of the industry leaders in the application of AI. Scott says the leading beauty company is a very forward looking, people-driven business. Its digital team consisted of around 150 people in 2014 and then totalled more than 1,000 two years later; today the company is reportedly geared to be ‘digital first’.² The company has gone from buying digital brands to digitalising its own.
Scott says: “Digital is revolutionising the beauty industry – from e-commerce to digital marketing and services – the entire industry is being disrupted.” To be a winner in this industry is now not just about spending money in big marketing campaigns – instead it is about personalisation, she says. “The revolution in consumer companies is the consumer itself – people don’t ‘go-on’ the internet anymore, they live there and companies have to take advantage of that shift.”
She cites one of the new technologies from L’Oreal aimed at such personalisation, a skin sensor designed to monitor UV exposure and help consumers educate themselves about their individual sun protection needs.
Scott says at Walter Scott the research analysts spend a lot of time considering the future implications for the companies it rates. Known for having a small portfolio turnover, confidence to stay for the long-term comes from examining areas such as whether a company is technologically robust or is future or disruption-proof – all of that adds to the team’s conviction, she says. So while Walter Scott portfolios may not appear on the surface to be overly exposed to technology, such as the well-known FAANG stocks, in reality, companies benefiting from technological change is higher when you dig a little deeper, she adds.
¹Investment Managers are appointed by BNY Mellon Investment Management EMEA Limited (BNYMIM EMEA), BNY Mellon Fund Management (Luxembourg) S.A. (BNY MFML) or affiliated fund operating companies to undertake portfolio management activities in relation to contracts for products and services entered into by clients with BNYMIM EMEA, BNY MFML or the BNY Mellon funds.
²Fortune. 27 December 2016. Here’s How L’Oreal Is Getting Involved With Digital Startups; https://www.thinkwithgoogle.com/advertising-channels/video/loreal-digital-first-marketing/
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