創新投資：市場波動和衝擊的影響

Renee Anderson: Matt, innovation and its adoption really accelerated in the past few years, and we’ve all experienced some elements of that in our own lives, especially through the pandemic. But like most other areas of the market, innovative companies have seen their share of market volatility in recent quarters. What’s your take on the current environment for investing in innovation?

Matt Moberg:  What matters most is, what are the fundamentals of the business? Are we still in the “Fourth Industrial Revolution?” Does investing in innovation still work, and what is happening with the companies underneath? And to us, that’s more important over the long term than trying to understand where the market’s going to go for the next, you know, three, six months, etc.

We still believe that that is true, nothing has changed with that, we still believe that innovation is accelerating, it demands active management, and it’s everywhere. Those really are sort of our north star, that philosophy and those three tenets. And that’s what we think about during times of stress. And then also during good periods of time, we believe that to be true. We still believe that innovation is accelerating and, in a world of accelerating change, sometimes I think that that can be hard to see. I mean, I don’t know, but do you remember when you stopped paying cash to buy a cup of coffee or when you stopped watching linear TV and stopped really watching commercials, or when you started using texts instead of emails to reach people? I would argue that for most people, they don’t remember that, they don’t remember when their last fax was. They just simply move on to the next thing. They move on to that next format. And sometimes they quickly forget what’s happening in the past. However, the ramifications for us as investors can be massive. So we think about it a lot.

Renee Anderson:  Obviously, tightening monetary policy with the frequent, sharp rise in interest rates has really had an impact on equity markets. How do you feel about valuations right now?

Matt Moberg:  If we take a 20-year history and we look at 1990 to 2010, the average interest rate during that period of time was, was 5.3%. And yet the S&P [500 Index] average was 17.7 times. So, 5.3% was the interest rate average for a 20-year period and 17.7 over that same 20-year period. And then you look at 2010 to today, that’s a 12-year period. And the average interest rate was 2.1% and the S&P average 17.3. So, 17.7 versus 17.3. Even though there was a 300 basis [points] difference in the interest rate, to us, that just simply implies that the average of the market over the past 32 years during different interest rates environments has been about 17.5 or so. And so, from that standpoint, we don’t feel like there’s any kind of significantly overvalue. In fact, most of these companies, at this point are below their average. And if there was another leg down it might hit other parts of the economy, usually in bear markets, everything gets hit. And so, what that means is what might be next is the cyclical space, housing, certainly with these higher interest rates, you know, banks with higher loan loss provisions.

Renee Anderson: There has been a lot of talk about bubbles and comparing what happened in the dot-com bubble back in 2000 to the environment today. What are your thoughts on that comparison?

Matt Moberg:  I would argue tech back then was completely different. It was not mission critical. It was not reoccurring. And today I think technology is critical. It’s critical to consumers, and it’s also critical to enterprises and to businesses. And today I would argue that technology is more like a utility, like energy. And it’s also often very reoccurring. That’s why software as a service gets some of the valuations that it does, because it is so reoccurring. However, those are in our opinion are the biggest difference and we are not going through a period like that, nor did we ever think that we were in bubble. We might have had areas that were a bit of a bubble, like in the SPAC [special-purpose acquisition companies] space or in the meme stocks or something, but that doesn’t mean the whole market is.

Renee Anderson: Alright. Let’s go through different innovation themes in the market, and where you see the biggest opportunities. But before we get into specifics, what’s your overall approach in identifying the big opportunities?

Matt Moberg:  What we often try to think through is, are things moving forward and are things accelerating or are things kind of moving back? In other words, like things are moving away, one area that’s sort of moved away is autonomous vehicles. If you had asked me in 2017, I would’ve said they’re probably going to be on the road by now. They are on the road right now, but in a very, very limited way. And so there’s a handful of ways to sort of think through this, the most common way we talk about is the duration of assets. And that is how long they have growth well in excess of GDP [gross domestic product]. And then also, how fast they accelerate. So, that is the pace of growth, which is how quickly they accelerate. And so, a lot of times we get questions about things like 3D printing or SPACs or hydrogen, and we would say those are fabulous technologies. We think they’re actually, going to change our life significantly, but they may not be investible yet. It may still be very early. And so, we’re trying to think through where are we on different technologies and where are we on the development of those business models and where can those business models start to click and start to make really, really good investments, and so that’s how we think about it.

When we try to think about what is the why behind the driving of this innovation and, why do we think that this innovation that’s going on today is going to continue? For me, the easiest way to describe it is this idea of the byte and the atom and the gene. And that is trying to say that for the first time in history, we, as humans, are able to manipulate things on their most basic form. And the most basic form for data is at the byte level and everything at the byte level is crashing very, very quickly on its way towards zero. And that means that securitizing that data, storing that data, creating that data is all quickly crashing towards zero, that allows for just an explosion of new applications. So we think that machine learning and artificial intelligence is going to play a big role in our life going forward. So will virtual and augmented reality, NextGen wireless is very important. Quantum computing, simulation software, synthetic data, all of these things are going to be great applications. On the atomic level, things like semiconductors, certainly a carbon-free energy, clean energy, renewable energy, whatever you want to call it, material science, recycling, there are tremendous advancements going on there. And then within the gene, certainly, gene sequencing, silencing, editing, vaccines, agriculture science is going to help us feed people. We’re going to build more seeds that are drought tolerant, more pest resistant, and then more diagnostics. So we can understand what ailments we might have earlier.

Renee Anderson: You briefly mentioned autonomous vehicles. What about electronic vehicles, and how you see innovation opportunities evolving in that space?

Matt Moberg:  There are 1.4 billion cars in the world. Almost all of them, except for 16 million, use liquid fuel. I mean, most of it is gasoline, but it also can be diesel. In some small cases, it can be natural gas and even hydrogen, but let’s just say they’re all gas-powered cars for 1.4 billion except 16 million are EVs [electric vehicles]. And so, when you think about 16 million EVs, if we are lucky, by 2030, and that is if we can get enough lithium and copper even off the ground, we will be making 25 million EVs a year. So that really, I think, helps understand how long we’re going to still need fossil fuels to transport ourselves. It’s going to be a long time until the world is all EVs and all hydrogen. And in the meantime, what we have done in the West is we have really told these companies we want that cash back. And we want you to invest in renewables, which is all super reasonable and because we don’t want any more global warming, which I think is completely fair, but what that’s done is that’s allowed OPEC to grow larger than it’s ever been before. It’s now 65% of oil production. And so I do think that we will probably need to use some form of fossil fuels, like more natural gas or something along those lines in order to solve some of these issues, even though I certainly do agree that we want to move towards the more clean energy and more renewable future. It’s all about the pacing. We can only accelerate. You can only push on the strength so hard. And so those have been some of the areas that we’ve been looking at, sort of, for the past half year or so that we do think are structural in nature and are going to change our societies for the better, and we think will be good investments over the next decade.

Renee Anderson: Ok, let’s transition and talk digital. There’s a of focus on the metaverse right now. Are you a believer?

Matt Moberg: So from our standpoint, the metaverse is sort of a funny term. I read an Economist article recently where they said it was a little bit like the term information superhighway back in like 97, 98, that’s what they called the Internet. I feel like the metaverse is going to be like that. I think one issue that the metaverse has is people anchor to “Ready Player One,” which if you haven’t seen it as a book and a movie about people basically living in a dystopian society, but being happy in this virtual world that they live in. I think this metaverse is going to be much more like augmented reality, and we will use it in different ways that we had not considered. And so some of the applications that make us most excited is a little bit different than say what Mark Zuckerberg might be excited about, but we do believe in the metaverse. And so, some examples of that are John Hopkins University, they just had a doctor perform a surgery on a spine with augmented reality and using the metaverse basically where he was able to wear goggles. And when he wore these goggles, he was able to see everything around them, but what he was able to layer on top of, while he was having this surgery was the x-ray and the x-ray was in 3D and three dimensional. So you’re able to see, he said, and his quote in the article was, it’s like driving with GPS. It’s like when you’re driving and then you’re shown the map while you’re driving. And so, you know where to turn and where to go. And so by layering on this three dimensional x-ray, he knew exactly where in the spine to do a procedure. And he said that the accuracy is going to be much higher because of this. For training, it makes a lot of sense for those that are using the metaverse for example, say in a nuclear plant and you’re going through a training exercise, perhaps you could wear some goggles and they would teach you which buttons to move by how much, which dials to press, which cabinets to go into, etc. And they could sort of help you through that. It could also help you through flight simulation and some other things. So I do think we’ll use the metaverse. I think it will be a new tool just like for example, texting or using the phone, but I just don’t think it consumes, in some ways I hope it simply doesn’t consume all of our lives. But admittedly, I think it will become more important in many different applications, certainly the most obvious one is for gaming and we think that that’s true. And so what we’re trying to find is where those areas can we monetize that and build new companies, new revenue streams associated with that. So I think that’s how we’re approaching the metaverse, but I do feel like there’s a reason it’s confusing and it’s because people anchor towards one thing. And I don’t know if it’s going to become that one thing.

Renee Anderson: Ok, what about blockchain?

Matt Moberg: Blockchain is a fabulous technology, but it’s also one that we would argue is very difficult to build a business model around it. And I’m going to give you an analogy that I think is helpful. I would say the second-greatest advancement in innovation is probably the containerization of ships. Now that sounds totally counterintuitive given where we are, but the containerization of ship, believe it or not a hundred years ago, when you landed a ship, I mean, you would literally just have these dock workers, which would be hundreds of men that would just get on the ship, grab a bag of flour, hop off the ship, put the flour on a specific truck, go back in the ship, grab a box, an awkward box, bring it out. The containerization of ships really allowed for global free trade to happen. It’s had a tremendous impact on our life—far beyond I think what most people appreciate. And now we’ve built these ships that are just absolutely massive.

So you think about that containerization of ships and you say, well, where is the money that was made? Do I want to buy a ship container company? Do I want to buy a ship-making company? You can I mean maybe somebody made a couple billion dollars off of that in general. But you know, in the global economy, it hasn’t been that great to be a container maker or frankly, a massive ship maker, even though there was a tremendous amount of change. I would argue that blockchain is like that. It is like this containerization example where it is going to create a lot of efficiencies in the economy. It will change how we do things and it will make things a little bit more seamless and some contracts more seamless, title insurance, etc. However, there may not be a great business model behind it. And, that’s I think that analogy holds of like how we might think about blockchain and why we sort of view it as deflationary and at the same time, not having a great business model.

Renee Anderson: We’ve covered a lot of different areas, Matt. As we wrap up, thinking back to the beginning of our conversation and the current investing environment, there’s just so much to consider right now. Do you look back on other periods in history, and if so, how do they factor into your strategies, investing in innovation?

Matt Moberg:  We just put out a paper recently about shocks. And in that paper, we sort of argue that shocks are some of the greatest accelerants of innovation, but they’re also very rare. At least we view them as reasonably rare. So, in the paper we go through this idea that from the oil crisis in the seventies that really ended American dominance of the auto industry, you know, gone were the 22-foot Buicks with a door on either side and in came in a new set of cars that were all compact cars. And it led to the rise of Japanese and maybe South Korean auto companies. And then that led to new innovations, which was better gas mileage, antilock brakes, airbags, because people didn’t want to be in these small cars while these big Buicks were still on the road. COVID was another one that was very unique in the sense that there were a lot of technologies that were really ready to answer that problem. Certainly, e-commerce, e-payments as well as vaccines and genomics and other things. And so, we like to say that external shocks occur, but they’re rare. What we’ve had in our opinion is two back-to-back. And in some ways they’ve canceled each other out. In other words, the war between Russia and Ukraine has led to shortages. Those shortages have led to less buying. And so, it’s stunted in some ways some of the advancements, which we felt were permanent in nature in e-commerce and in payments and e-commerce and payments are highly correlated. And it stunted it because people are now spending more for food and they’re spending more for energy. And in Germany, energy prices are up 15 times that starts to really affect your wallet when something like that happens. And so when we think about what’s going on with the war on Ukraine, we think this is going to lead to a lot of innovation in renewable energy, in energy in general into natural gas, and into agriculture.

Renee Anderson: Matt, we really appreciate your time and insights. That’s Matt Moberg, portfolio manager with Franklin Equity Group. Matt, thank you for joining us on “Talking Markets.”

Host:  And thank you for listening to this episode of Talking Markets with Franklin Templeton. If you’d like to hear more, visit our archive of previous episodes and subscribe on iTunes, Google Play, Spotify, or just about anywhere else you get your podcasts. And we hope you’ll join us next time, when we uncover more insights from our on the ground investment professionals.