Artificial Intelligence (AI) is transforming the way we drive, the way we communicate with each other and the way we learn, creating a host of opportunities for investors.
But while the likes of Tesla and Google are obvious targets for investors seeking exposure to this rapidly growing field, many will be unaware that exciting AI opportunities also exist in finance, healthcare, media and many other sectors.
On the one-year anniversary of the launch of Smith & Williamson’s £100m* Artificial Intelligence fund, Chris Ford, the strategy’s lead manager, explains how AI is making its way into every part of our lives.
Ford says: “When most of us think of artificial intelligence, we might think of self-driving cars made by Tesla, or Siri, Apple’s virtual assistant.
“But artificial intelligence is now being used by a whole host of companies and industries, many of which may surprise investors.”
With opportunities in most major industries, the Smith & Williamson Artificial Intelligence Fund invests across a wide spectrum of sectors around the globe in order to gain exposure to the trend. “From healthcare to commodities, companies are all starting to benefit from the implementation of different forms of artificial intelligence,” Ford says.
With its diversified portfolio of companies from around the globe, the Smith & Williamson AI fund – run by Ford and co-manager Tim Day – has returned 35.3% in dollar terms in its maiden year. Over the same period, the MSCI AC World index has risen 10.4%, while the NASDAQ Composite is up 22.4% (source of data: Morningstar as at 29.06.2018).
Ford said: “Although we are very pleased with this outturn, we would stress that AI is a long-term investment theme, and greater opportunities are likely to come in the years ahead as AI begins to infect almost all areas of daily life.”
Below, Ford highlights three companies operating in unexpected sectors where AI is coming to the fore.
1 – Healthcare
Intuitive Surgical uses AI technology to conduct operations that are more effective, less invasive and easier on both surgeons and patients. Its da Vinci surgical system allows surgeons to carry out open surgery through just a few small incisions.
Ford says: “There has been growth in the use of robot systems in hospital settings, which has led to a rise in the number of procedures that use its technology.”
“Intuitive Surgical’s technology platform uses 3D imaging and analytics that translates the surgeon’s moves into precise real-time movement of its surgical instruments.”
“In terms of its prospects, there is not only potential for margin expansion for the Da Vinci system, but also – thanks to its growing geographic presence – significant scope to increase the amount of procedures the technology is used in.”
2 – Financial services
TransUnion is a credit reference agency that uses data, analytics and AI technology to paint a picture about an applicant’s credit history.
Ford says: “It operates in a high barrier to entry field, using data that just three companies have access to. The use of its data is also embedded in customers’ work processes, giving them a recurring revenue model.”
“It is enjoying ongoing margin expansion via leverage of its technology platform, while it also has a geographic growth opportunity in markets including India and Hong Kong.
“Couple that with a pricing power advantage and long-term growth drivers and it looks attractive.”
3 – Media
RELX provides information and analytics for businesses across a number of different industries, including science, the legal profession and exhibitions.
Via its LexisNexis product, it uses advanced technology in numerous ways to improve its offering to clients, including machine learning which helps analysts look at seemingly large amounts of data to identify any visible patterns and take actions accordingly.
“At a high level, demand in their end markets remains robust across their four divisions, and the shift to offering higher-value analytical tools continues to grow the revenue opportunity. As this proportion grows, a modest increase in their share could deliver substantial revenue upside.”
“From a margin and cash-flow perspective, we see potential for the share buy-back to grow from its current level.”