Here are some examples of technology companies we invest in that are helping to build a more resilient society.
Technology companies were hit with volatility as investors reacted to the COVID-19 pandemic in the first half of 2020. Apple responded to lockdowns in some of its Chinese manufacturing hubs by announcing it would temporarily close stores. On the other hand, tech companies like video-conferencer Zoom benefited as more people worked from home. While short-term performance is often volatile, over the longer term the IT sector is likely to continue to drive the global economy.
Technology is the engine that powers business and enables the instant communications and connectivity we take for granted. It also has enormous potential to transform how we use resources across other business sectors – with significant benefits to the environment and society.
We believe technology will play a key role in the transition to the renewable-powered economy of the future, and that’s part of the reason our portfolios have an overweight position in the IT sector.
Embracing the cloud
In recent years, there’s been a strong trend away from storing data on in-house servers. Instead, more companies are outsourcing data storage to the cloud which is managed in large data centres, creating a significantly more efficient option than on-premise servers.
The energy used by these data centres is nonetheless substantial and a challenge in its own right. However, some major data centres, including those owned by Apple and Google, are now 100% powered by renewable energy. Meanwhile, Nordic centre DigiPlex has pledged to use waste heat from one of its data centres to warm up to 5,000 apartments in Oslo.
Companies like Microsoft are taking impressive measures to limit their carbon footprints. Rather than just aiming to be carbon neutral, Microsoft is on a pathway to become carbon negative by 2030. The company says that by 2050, it will have removed from the environment “all the carbon the company has emitted either directly or by electrical consumption since it was founded in 1975”.
Saving energy, saving trees
One of the best-known advantages of technology and digital solutions is that they can reduce a company’s reliance on paper. Logging trees to make paper is one of the key causes of deforestation, which impacts on biodiversity and contributes to climate change.
Using digital solutions, like viewing documents online and sending email instead of letters, can help save trees – and therefore our forests, with a flow on effect to our climate. To illustrate, an Argentinian study concluded that producing a four-page direct mail letter and envelope accounts for 25 grams of carbon, even before it is sent. Compare this with email, which is estimated to generate just 4 grams.
Technology stocks we invest in
As at 12 October 2020, our Australian Shares SMA strategy held 18% of its portfolio in four technology companies: Bigtincan, Nitro Software, Link Administration and Domain.
Bigtincan sells software in the fast-growing sales enablement category. Their technology platform is designed to provide sales teams with the tools they need to make a comprehensive and effective sales pitch. Bigtincan's user interface combines content management, document automation and a fully integrated learning management system.
We like that Bigtincan is an Australian-founded company with global reach that operates in an underpenetrated market. Under the Australian Ethical Charter, it receives a positive assessment because it creates efficiencies for its customers. We like the business model because it has a high level of recurring revenue (due to its subscription based pricing model), a sticky customer base and a strategic executive management team.
Nitro is a SaaS (software as a service) company providing PDF productivity tools and e-signing solutions. Their software enables organisations to digitise their workflow processes and reduce the use of paper. Nitro operates in global markets with the majority of revenue (90%) generated offshore. We are attracted to NTO because of its favourable SaaS metrics, global penetration, large addressable market, and strong management team.
Domain provides residential and commercial property marketing services through its online listings portal. The company’s digital advertising platform is positive under our Charter as an efficient medium of advertising compared to print advertising. Because it also helps people secure housing, Domain attracts a positive adjustment under our Charter.
From an investment point of view, Domain is firmly established as the number two in digital property advertising in Australia behind REA Group. There are structural tailwinds supporting these businesses as property listings continue to flow out of print and into online platforms. We believe Domain has a strong management team backed by Nine’s ownership of the company, healthy cashflows and the potential for higher earnings growth.
Investing for good
We believe investments need to do more than deliver strong financial returns – they also need to generate a positive impact. Used well, technology can help improve efficiency, reduce waste and improve peoples’ lives.
Mark Williams is the portfolio manager of the Australian Ethical Australian Shares Portfolio, available now on the Praemium and Hub24 platforms.
This information has prepared by Australian Ethical Investment Ltd (ABN 47 003 188 930, AFSL 229949) without taking into account any client's objectives, financial situation or needs. No person should act on the information without first considering whether it is appropriate to their own objectives, financial situation and needs. Past performance is not a reliable indicator of future performance. You should obtain and consider the relevant Financial Services Guide and Product Disclosure Statement relating to a product before making a decision about whether to acquire that product.