What is the biggest theme you’re currently focused on in the technology sector?

We consider AI one of the tech mega-themes pulling the global economy toward a digital future. AI is a connective thread that is optimizing data and computing power to deliver productivity-enhancing solutions that other favored themes of ours, such as the cloud and Software as a Service (SaaS), could not achieve on their own.

While a chatbot like ChatGPT may seem like a novelty, the underlying Large Language Model (LLM) and generative AI technologies are game changers. Simply defined,generative AI is technology that enables computers to create human-like content based on its own inferences from data sources rather than taking cues from human inputs. LLMs, meanwhile, are capable of predictive text like those already integrated with voice-activated assistants such as Alexa and Siri.

How long do you expect the theme of AI to play out in the global economy?

A commonly cited phrase in technology circles is that we always overestimate what tech can do in a year and underestimate what fundamental paradigm shifts in the sector can do in a decade. Which is to say, I think we’re at the very tip of the iceberg.

Generative AI is bound to have some false starts, and while this technology is mostly in the experimental stage, it has already been deployed in commercial applications. That will only grow. Importantly, with each paradigm shift in tech we can expect exponential growth in the market as established businesses and entrepreneurs alike seek creative ways to deploy these advancements. The result should be broad-based productivity gains that have the potential to benefit the entire global economy.

Simply put, AI has the potential to be the single biggest productivity and economic multiplier since the industrial revolution.

How are you investing behind these themes in the Global Technology and Innovation Fund?

We think the key to successfully investing in themes like AI is being able to separate hype from reality to determine the real beneficiaries. Once we identify those beneficiaries, our ability to quantify the incremental opportunities for AI for these businesses helps us frame whether a business can grow into some of these elevated valuations at which they are currently trading. And of course, we also need to identify AI losers – those companies that are clearly on the wrong side of the change.

Two industries that are clearly leveraged to the rollout of AI are the semiconductor complex and the public cloud providers that collect and store the data that are the feedstock of advanced computing.

Across industries, AI can assume responsibility for the more mundane steps, thus freeing up workers to concentrate on value-added functions. Already Microsoft offers a service, Copilot, capable of generating lines of code. New and existing software companies are likely to continue to integrate AI into their offerings to add even more value for their clients.

Aside from those obvious beneficiaries, another industry where AI could have meaningful impact is healthcare. Imagine being in an emerging nation or a rural area where you might be hundreds of miles away from the nearest doctor and being able to use AI to self-diagnose issues.

Drug discovery is also ripe for transformation via AI. Being able to use large AI models to analyze pathogens an biomolecules at a significantly faster rate than what a human is capable of would accelerate process and, hopefully, enable manufacturers to develop cures much faster they ever have.

There are also companies that we refer to as the worst-inclass, best-case opportunity set for AI – those companies that spend exorbitantly on customer service only to provide a terrible experience. By incorporating AI to automate and elevate their customer service functions, these companies could significantly enhance productivity and improve their bottom line.

Are there still reasonable areas in the market to invest in AI companies??

While valuations for some companies have risen, they have not come anywhere close to the same heights as the dot-com bubble. More importantly, the potential for earnings growth looks real, and is already materializing in some areas of the tech sector and market overall.

Looking back over the last 15 years, tech has been the single best-performing sector in the economy, and we expect that to continue. The beauty of investing in high-quality growth companies at reasonable valuations is that their growth algorithm should remain consistent over a multi-year period despite what might happen over a six-month period.

What role can the Fund play in a portfolio?

Technology is dramatically impacting every sector of the global economy, and the Fund seeks to invest in growth companies that are driving this innovation or benefiting from advances in technology. We invest in companies with a culture of innovation that we believe to be resilient, and we also take smaller positions in companies that have optionality – that is, large potential upside under a specific scenario.

Furthermore, our team of tech analysts is embedded deeply within the sector, approaching research as an industry participant. In this complex and rapidly growing sector, it is critical to have experienced investors working to evaluate the impact of disruptive technologies and actively aim to identify both winners and losers.

Through this approach, the Fund seeks to provide investors strong, risk-adjusted returns over time, with volatility characteristics that are on par with its peers.