4th June 2013
Lombard Odier Technology fund manager Bolko Hohaus says his fund has doubled its exposure to Asia in the past year to roughly 30 per cent in the belief that technology will form an increasing part of Asian GDP.
He says that, among other things, there is an increase in intellectual property being generated in Asia. “Countries in the region are coming up with new material and products in niche tech areas – for instance, semiconductor equipment, and technologies such as organic LEDs.”
Also significant is the fact smart phone markets are increasingly being driven by Asian consumer preferences with Apple making a huge mistake in not adapting quickly enough to a two billion person market double its potential consumer base in the US and Europe combined.
“A key example of this is Asian consumers’ preference for bigger screens. Apple missed this product cycle as they didn’t appreciate the significance of the trend. This is a big mistake to make, given that there are 2 billion people in emerging markets who can afford the devices they are making – double the number of consumers in the US and Europe combined. While Apple is bringing out a larger phone screen next year, they are responding to a trend rather than driving innovation. Apple’s rival Samsung, on the other hand, is demonstrating a commitment to innovation in its plans for flexible or unbreakable devices over the next 1-2 years, which we feel is underestimated by the market.
“Apple’s recent lack of innovation is one of several reasons why we don’t hold any shares in the company. Another reason is that Apple derives two-thirds of its profits from one product – the iPhone – and it looks like the company is on a trajectory to shrinking margins.”
He says the fund is also avoiding Facebook but is a fan of Yahoo! “We don’t hold Facebook in our fund – it’s what we call a ‘social club’ and has a limited time span, as has already been shown by surveys that US teenagers spend less time on the platform than in the past. Over time, this will prove to be an unstable business model, with declining user numbers and advertising revenues,” he says.
“Yahoo! by contrast is in our top ten holdings. This is because of its strength in Asia: it holds a stake in Yahoo Japan, the online leader in Japan; is seeing a turnaround in its core business which should generate further upside; and it owns 24% of Alibaba, the Chinese e-commerce company which could be valued at around $100bn when it floats over the next 6-12 months.”