Simon Clements

The disruptive technologies set to change the world

Simon Clements

This article was first published by Alliance Trust Investments on 4 April 2016.

Simon Clements, investment manager, looks how technological change is a constant feature of the modern digital age, providing a wealth of investment opportunities. Here he explores a few of these including smart buildings and smart cars.

Technological change is a constant feature of the modern digital age. Disruptive technologies permeate every facet of our lives, often improving our quality of life and making what was previously considered impossible, possible.

In the 1970’s the idea that every family would have a computer in their home seemed both fanciful and unnecessary. 40 years on and the advent of smart phones means that most of us have access to a computer all day, every day. From horse and cart to car; VHS to DVD’s; CDs to iPods and iPhones – technology has progressively reshaped our every-day lives.

The ATI Sustainable Future process is thematically driven and our focus is on the changes that are happening within the global economy. We look for and invest in technologies that improve people’s quality of life, make the economy more efficient, safer and more resilient and are attractively valued.
Many of these technologies are disruptive, and as investors, our ability to identify long-term technology winners from inception is crucial. The adoption of new technologies is almost always underestimated as is the impact on the challenged, incumbent technologies. Adoption curves for disruptive technologies can often accelerate exponentially, and true disruption is very difficult to predict.
An example, cited by academic and leading commentator on the role of technology as disruptor Dr Tony Seba, tells the story of telecommunications giant AT&T hiring consulting firm McKinsey in the mid 1980’s to forecast the adoption of mobile phones over the next 15 years. McKinsey’s prediction was 900,000 subscribers, but by 2000 some 109 million people were using mobile phones. McKinsey’s estimate was off by a factor of 120.

History shows that experts consistently fail to understand the exponential nature of disruptive technology adoption. So, as investors, we need to continually identify key technological changes and understand that once adoption begins, it can accelerate very quickly. Identifying new trends is the cornerstone of our process, and we are seeing some exciting opportunities in the current emerging group of disruptive technologies, such as energy storage, smart buildings and smart cars.

Immediate applications

A key emerging disruptive technology combines cost competitive solar power and battery storage technology. Even if we ignore the carbon benefits of solar power in the energy grid, the ability for homes to generate enough power for their own needs, and for a cost which is competitive and does not increase over a 20 year time period, is an enticing prospect.

Encouragingly, obstacles standing in the way of this goal are increasingly disappearing, with costs of solar technology falling. The economics and realities of the finite fossil fuel industry look increasingly less attractive as the production costs of renewables fall and economies of scale increase.

Another current limitation of solar energy is intermittency; the sun shines during the middle of the day but we consume most of our power in the evenings and in the morning. However, the solution to this problem may be around the corner in the form of ever improving battery technology. Home batteries could allow us to store energy during the day, and to use it as we need it in the evening.

Tesla’s ‘Power Wall’ - a home battery that charges using electricity generated from solar panels during the day (when utility rates are low) and powers your home in the evening – is an example of a disruptive technology that has the potential to revolutionise home energy usage.

In our portfolios we invest in a number of firms that will benefit from the changes to solar technology and the advances in energy storage, such as SunPower, a specialist in the design and manufacture of energy saving and environmental protection products like solar cells; Manz, which supplies and services integrated production lines for panel displays, thin film solar modules, and lithium-ion batteries, and IP Group whose portfolio includes CleanTech companies such as CeresPower, who develop fuel cell technology.

Smart buildings

Another disruptive technology that may well be at a tipping point is the network technology behind smart homes and buildings, which is emerging as the next big potential change to everyday life. Just as smart phones took a semi-conductor chip and transformed our mobile phones into an intelligent hand held computer, semi-conductor chips that are integrated into everyday appliances like home refrigerators, office air conditioning and lighting units can transform the way we use energy and cut costs for consumers and businesses alike.

This technology will allow air conditioning systems to connect with lighting systems, for example, to ensure they harmoniously adjust to various different factors such as human occupancy and sunlight levels to ensure no energy is being wasted. Meanwhile your fridge will soon be able to connect to your home energy system to optimise when it draws power to avoid peak energy costs.

In our portfolios we hold companies that are driving this smart revolution, from Acuity Brands in lighting, Daikin in air conditioning technology, Google and Schneider which design the controls, to Arm Holdings which pioneers widespread adoption of semiconductors in a host of everyday appliances.

Smart cars

The automobile industry has been in the news recently, after the Volkswagen scandal exposed the fault lines in an industry that is struggling to cope with the challenges of disruptive technologies. The irony is that cars were a disruptive technology themselves when they displaced the horse and cart. The industry has struggled to adapt to increasingly stringent environmental standards, and the demand for smaller, more efficient vehicles.

The car of the future will be more like a computer on wheels than a complex mechanical motor, and technological advances here are moving very quickly. Again, Tesla is leading the way and has proven that electric cars can make better performance vehicles than those with traditional combustion engines – at the same time as being five times more efficient. We currently don’t invest in Tesla as we think it is overvalued, however we invest in the companies that are enabling the change that Tesla has pioneered, such as Linear Technology and NXP semi conductors.

Autonomous driving technology, which only a few years ago was considered science fiction, is rapidly evolving and the possibilities are very interesting. These so called ‘self-driven’ cars will almost certainly use roads and infrastructure more efficiently, meaning fewer accidents and more time to work and relax – rather than drive. These technological advances are happening now, and the traditional car manufacturers are scrambling to adapt.

Cars being made today are already increasing their electronic and software content significantly. Around 70% of the value of a Tesla car consists of software and electronics – with the engine forming a much smaller component than for traditional competitors, whose vehicles are typically only around 30% software and electronics. However, this figure is moving up and we hold a number of companies set to benefit from this growing electronic content in the auto industry such as NXP, Infineon, Hella and Linear Technologies. These companies are the key players in the technology industry in areas such as the semi-conductor chips which process information in and around the car.

What is most interesting is that many of these disruptive technologies are interrelated. As electric vehicles become more popular, demand for solar technology increases, driving down its cost. Meanwhile, advances in battery technology reduces costs for both home batteries and electric vehicles, and also feed into smart homes and smart buildings. In the ATI Sustainable Future team we believe we are on the cusp of something revolutionary, and our process has built portfolios that are set to benefit from this change.


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Key Risks

Past performance is not a guide to future performance. Do remember that the value of an investment and the income generated from them can fall as well as rise and is not guaranteed, therefore, you may not get back the amount originally invested and potentially risk total loss of capital. The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.

Some of the Funds managed by the Sustainable Future Equities team involve foreign currencies and may be subject to fluctuations in value due to movements in exchange rates.


This content should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Examples of stocks are provided for general information only to demonstrate our investment philosophy.  It contains information and analysis that is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. It should not be copied, faxed, reproduced, divulged or distributed, in whole or in part, without the express written consent of Liontrust. Always research your own investments and (if you are not a professional or a financial adviser) consult suitability with a regulated financial adviser before investing. 
Sunday, April 3, 2016, 11:00 PM