Fund That Called the Smartphone Boom Piles Into Driverless Cars … – Bloomberg
Fund manager Elizabeth Soon is on the lookout for her third “a-ha” moment. If her latest theme pans out as well as the first two, investors should start looking at driverless car suppliers.
So far, Soon’s moments of investor clarity in almost a decade at PineBridge Investments Asia Ltd. have been related to the smartphone — both of them cases where she’s recognized undiscovered trends destined to take off. While she doesn’t place her latest interest in quite the same category, she says the coming revolution in autos may be a key opportunity for investors.
“A driverless car is something we think will come,” said Soon, who is particularly interested in the components sector, which will play a greater and greater role as driving becomes progressively more automated. “As things develop, that area is going to grow quite strongly.”
She notes that investors may need patience for an industry that may take 15 years to develop. Soon and her team are used to a long-term approach, sometimes vetting companies over a number of years, poring over balance sheets looking for consistent return on equity and prudent capital spending, especially in research and development.
Boston Consulting Group estimates the industry will jump to $42 billion by 2025 and account for a quarter of global sales by 2035. Companies including Tesla Inc. and Ford Motor Co. have promised to have driverless vehicles on the road within five years, but Soon points out that it won’t create a market where everyone suddenly has a driverless car.
“Not everyone will have a car or need a car,” she said in a March 20 interview at PineBridge’s Hong Kong office. “In a house you might have three or five smartphones, but a car you probably have one or none or two depending on your needs.”
The comparison with smartphones seems apropos from a manager whose insights into that industry paid off so well. The first instance was a realization that cheaper versions of the then-expensive pieces of technology would eventually find their way into the hands of everyday consumers. The second came a few years later, when one of those devices was indeed in the hands of her daughter at the dinner table.
“My daughter was Facebooking everything she eats,” Soon said. “I happened to pass by tourists picking up their tablets to take pictures, and it struck me, what happens if we use more of our phones and tablets to take pictures and less with digital cameras?”
In both cases, Soon and her team targeted companies that could leverage the trend through a specific component or product. Shenzhen-based mobile components maker AAC Technologies Holdings Inc. is up about nine-fold since the end of 2007, when Soon’s small-cap fund first disclosed a holding in the name, according to data through June 30 compiled by Bloomberg. The fund also owned Taiwan optical lens manufacturer Largan Precision Co. beginning June 2016, the data show, with that company climbing more than 60 percent since then. Soon declined to discuss specific names in her portfolio.
The PineBridge Asia ex Japan Small Cap Equity Fund, with assets of about $152 million, is up about 13 percent so far this year, besting 97 percent of its peers in a group of more than 100 funds, according to data compiled by Bloomberg. And over five years, the fund has beaten 90 percent of its peers.
The fund recently invested in Guangzhou Automobile Group Co., the Chinese carmaker seeking to break into the U.S. market, data compiled by Bloomberg show. GAC said in January it plans to open up an advanced R&D center in Silicon Valley in the first half of this year to speed up research into connected cars and identify acquisition targets that will help the company develop advanced technologies. GAC shares advanced to a record March 15.
Soon and her team tend to hold investments for three to five years or more, with about 35 to 50 percent annual turnover. While Soon’s patience might seem surprising in the boom-and-bust world of small-cap stocks, that’s intentional, she says.
“At the end of the day, exceptional growth has to come with exceptional management,” she said. “So we don’t actually have a lot of exceptionally growing companies. We are looking for companies with consistent growth but good management.”