Innovation isn’t always flashy, according to Liontrust’s global innovation team which focuses on the unsung heroes of technology.
The team was started around 10 years ago and now consists of three funds with four managers.
The first, the Global Dividend fund ,was started seven years ago and the most recent global technology fund was launched at the start of last year.
James Dowey, of the two lead managers in the team, said: “Everybody has got their own definition of innovation, there is probably a bit of a misperception that it is always about seeing high growth and the best, most flashy technology.
“We take a view that it is actually much simpler, it is really about new ideas that dramatically drive prices down for people.
“A lot of people on the investment side don’t like to see prices going down but the beauty there is you grow demand.”
It is this approach which makes the team different from others in the industry, claims Dowey.
He added: “We are all extremely passionate about our philosophy and there is very little overlap with our competitors.”
The team has a watchlist of 200 innovators which they check on daily and update with around 10 to 20 names a year, switching out old names.
Fellow fund manager Clare Pleydell-Bouverie, who joined the team in 2022, explained having a “narrow universe” allows the team to focus on the best companies.
She said: “It really helps to be process oriented. We narrow our investment universe and only invest in companies with a £1bn market cap.
“We are very active because there are a lot of opportunities out there.”
Companies must meet four criteria to make it from the watchlist to a fund.
These are innovation, barrier to competition, management evaluation and return on invested capital.
'Watershed of opportunity'
The team focuses on “unsung” technology companies, generally steering clear of the mega cap companies which have been driving the market recently.
It waits for cyclical weakness across the watchlist before it makes an investment.
Technology companies have driven the markets in recent quarters due to a rise in interest in AI and these fund managers think we are just at the start of a new technology cycle.
Pleydell-Bouverie said it is not the tech giants that will benefit from this new cycle going forward.
She said: “Last year the mega caps did well.
“We think this is all because they have got very good AI capability but one of the reasons they got a reputation as early leaders is because they were able to invest a lot of money before others. They have deep pockets.
“Now, as we are seeing AI dispersal into more industries, we think this watershed of opportunities is going to become more apparent.”
Dowey said it is hard to get return from these mega caps due to their size.
He added: “With all this novelty there is a big risk of disruption, there will be winners and losers.
“We don’t necessarily think the incumbents will be the winners.”
tara.o'connor@ft.com
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