GrowthFeb 16 2018

Pushing Amazons of the future is a risky business

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Pushing Amazons of the future is a risky business

A number of companies are emerging with the potential to disrupt and dominate their respective markets.

Shareholders in disruptive companies can reap big rewards from stealing market share from large incumbents, but should advisers be pushing the potential Amazons of the future as investing in these companies comes with its own risks?

Identifying companies which are genuinely tomorrow’s winners isn’t easy, Laith Khalaf, senior analyst at Hargreaves Lansdown, points out.

While there have long been many great companies offering solutions to the worlds sustainability challenges, rarely have these been truly disruptive to the point that they have changed the way a market operates in the same way as businesses like Amazon or Facebook. 

Nascent technologies, poor business models or management, regulatory complexity or cyclical headwinds have often got in the way.

But Craig Bonthron, co-manager of the Kames Capital Global Sustainable Equity fund, says he has noticed more and more sustainable companies emerging as viable disruptive winners by explicitly offering scalable solutions to some of our biggest sustainability challenges. 

While disruptive technology is the theme of the moment, back in 2015 to 2016 it was 3D printers that were set to take over the world.

He identifies US-based Everbridge, which provides real time emergency communications built on a cloud-based software platform, as a disruptor that advisers and their clients should take note of.

Growing quickly due to a disruptive low price combined with a step change in functionality versus old one-way communication infrastructure, Mr Bonthron says the group has seen its share price double over the past five years. 

In terms of a sustainable investment, Mr Bonthron says Everbridge provides tangible life-saving and economic benefits during natural disasters and terrorist events.

He also identifies Insulet, a US-listed business and manufacturer of the Omnipod, an innovative tubeless pump patch that delivers insulin for type-one diabetics, as an Amazon or Facebook of the future. 

The Omnipod is a unique technology that replaces the need for patients to have 14 needle injections over the course of three days and is cheaper than an alternative larger pump and tube which has high upfront costs.

But Adrian Lowcock, investment director of Architas, questions how many companies pushed as technology disruptors generally do have the potential to be an Amazon and Facebook and transform the way we shop and communicate.

He says: "I think we have to be careful when we see the term being used. Yes technology is transforming industries but that does not mean all industries will be washed away as technology innovation washes over each sector. 

"This is rather akin to the dotcom bubble when investors completely disregarded utilities such as electricity providers – thinking who needs them when you have the internet."

Looking at Mr Bonthron's recommendations, he says if you look under the hood with Everbridge this is more about evolution of a sector which is likely to continue to grow as data storage and usage grows. 

Mr Lowcock says the company was not disrupting an established sector so much as leading change in a rapidly evolving new one.

He adds with Insulet today’s innovation could quickly be superceded by  another one tomorrow –  a treatment that is more advanced and better, or even a permanent cure perhaps?

Overall, Mr Lowcock says the risk with pushing technology disruptors is each company needs to be looked at individually and while doing so it was worth highlighting the fact that Amazon and Facebook are also not as dominant as one might think.

He says: "There are plenty of markets that they don’t have the expertise in, nor the desire to enter into. 

"The opportunities here haven’t been as fully appreciated by the market as the large tech companies which have tended to be more consumer focused and higher profile as a result. The tech sector as a result is not as expensive as many investors think and there are plenty of growth opportunities.

"However, it is also important not to disregard established players, it is not always the inventor that profits from their new invention but the company which uses it best, or markets it best that becomes a success."

Ultimately it is important to remember – and remind clients - that while disruptive technology is the theme of the moment back in 2015 to 2016 it was 3D printers that were set to take over the world. How many of you own one of them?

emma.hughes@ft.com