JP Morgan Private Bank hunts for niche tech plays

The firm's investment head for Asia says it's hard to find pure-play products for robotics and and cyber-security, which are both increasingly popular themes among clients.
JP Morgan Private Bank hunts for niche tech plays

Robotics and cyber-security may be hot investment themes, but accessing them is not easy, said JP Morgan Private Bank’s Asia head of investments. 

Hong Kong-based Christopher Blum said the best approach was to gain exposure to these areas through private equity investments and individual stocks, because of the lack of pure exposure provided by exchange-traded or mutual funds.

“It has been challenging to find suitable products under the robotics theme,” he told AsianInvestor.

Rapid advances in technology have made automation via robotics cost-effective for companies across numerous industries. The term ‘robotics’ is used to encompass a variety of applications, such as automation, autonomous systems, sensors, 3D printing, data processing and voice recognition software.

Robotics has garnered significant headlines and interest in recent years. Every major listed tech company is dabbling in at least some of these emerging trends. 

Social media giant Facebook is betting big on ‘augmented reality’ – a technology that superimposes computer-generated images on a user’s view of the real world – and recently launched an AR development platform. E-retailer Amazon now has a robot army in its warehouses. And Microsoft recently unveiled a watch to help people with Parkinson’s disease write more clearly.

Seven of the 15 robotics-focused ETFs globally have listed since the start of 2016, and the total assets of these 15 funds has quintupled in the first half of this year to $2.14 billion from $415 million, said the firm, according to research provider ETFGI.

  Chris Blum

However, for many of the companies that robotics ETFs and mutual funds invest in, the sector accounts for only a portion of business, noted Blum. This is because there is only a handful of pure-play robotics companies in the market, he said. Commonly cited examples include Japanese companies Fanuc and Yaskawa.

Still, Blum is keeping a close watch on this space, where he said there is considerable client interest.

Cyber-security is another theme that has attracted a lot of attention thanks to the rising frequency of ransomware attacks in recent months, such as the WannaCry virus in June.

However, Blum’s team is struggling to find pure-plays for this area. Mutual funds that invest in security are not generally dedicated to cyber-security, said industry sources; they also encompass other stocks focused on automobile, personal and other forms of security. There are not thought to be any pure-play funds for this space.

Another popular sector among investors – and a key focus for Blum’s team – is healthcare, and he feels this demand is well founded.

New rules announced early last year allow the US Food and Drug Administration (FDA) to communicate more frequently with drug makers during the drug review process, noted Blum. This is enabling sponsors to address deficiencies long before any decision is made, he said, and has boosted the drug approval success rate.

Moreover, in late June the FDA announced it would fast-track applications of generic drugs for which there are too few manufacturers.

Another point in healthcare’s favour is the trend towards industry consolidation, said Blum. M&A activity is likely to pick up, as companies are flush with cash, he noted.

“Companies need to refill their pipelines as older products lose their patent protection,” he explained. “Biotech firms with innovative therapies will remain prime acquisition targets.”

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