Time to get Greedy for Applied Innovation
August 2024: Global markets are plunging, marking the most significant correction since the Covid 19-pandemic in 2020. There is a reason why a huge part of “market psychology” derives its findings from the “study of herd behavior”. In times of perceived heightened uncertainty, fear is a bigger driver than greed. At The Singularity Group (TSG), we take a laid-back approach on strong market moves for two main reasons: 1) We understand what we invest in: Applied Innovation is innovation that exists. It has historically proven to not only survive but progress through difficult times — delivering on substantially stronger earnings than other areas of the market; 2) We systematically manage risk by regularly rebalancing portfolios unemotionally, taking profits when markets have been greedy and reallocating to Applied Innovations that have been underestimated or overly punished.
Taking a look at The Singularity Fund’s performance, such corrections have historically without fail proven to be excellent buying opportunities. Investors who put money towards our flagship portfolio during the Covid-dip, made a return of +117% as per end of July. Most importantly, these recoveries are not just mere mean reversions. Superior earnings delivery has verified such recoveries time and time again: The realized EPS Growth of 111% since inception amounts to twice the one of the MSCI ACWI (53%) over the same period.
What does this mean for (generative) AI: Do we see the burst of a bubble or a healthy release of hot air? The correction in equity markets has several drivers. One being results of big tech companies pointing to higher spending, particularly in AI related efforts, coupled with earnings misses in some business areas expected to benefit from this spend. From an Applied Innovation perspective, we understand this issue all too well: Indeed, some hype is priced into AI and some companies do not have products to sell to make up for the spending. These companies will continue to struggle. However, other companies are well underway producing exactly the products and services these heavy spenders are in need of.
“There is for sure too much hope priced into some of the AI dreams,” TSG-CEO Evelyne Pflugi comments. “Having said that: none of these cash-heavy companies have reported any real negativity on AI: real negativity would be a spending cut. To the contrary, they are spending more! Some are just not creating products good enough to sell. This is still unbelievably good for the AI value chain. Some babies are being thrown out with the bathwater here.”
Applied Innovation — the continuum in a correction
Our investment strategy avoids two of the main investment pitfalls: trying to time the market and letting emotions take over decisions. Key to this relaxed stance is the consultation of the Singularity Think Tank, a global network of innovation experts, mainly entrepreneurs and thought leaders. With their help, we continuously map which future technologies are on the horizon, which Applied Innovations are generating revenues in markets today, and which established or commoditized innovations should no longer be of interest to investors.
This selective approach leads to diversified exposure to truly innovative, profitable products and services as well as their enablers. By taking the whole value chain into account, The Singularity Fund covers innovation across all industries and sectors, currently about 50% of its weight resides outside the tech sector. As we rely on measurable innovation and ignore all types of noise, the portfolio is immune to hypes and headlines.
Summed up: Selecting for Applied Innovation has proven to be a superior investment strategy at any time, and so has buying the dip.
About The Singularity Group
The Singularity Group (TSG) quantifies Applied Innovation for investors in listed equities. TSG is the initiator of the Singularity Index™ (Bloomberg ticker: NQ2045), a global, all-sector benchmark and gold standard for Applied Innovation. The Singularity Strategies include The Singularity Fund (UCITS Lux), Singularity US Innovation Leaders (AMC), Singularity Small&Mid (UBS AMC), Singularity Reindustrialization (UBS AMC), and LUKB Smart Farming (AMC). The Swiss investment advisory boutique works closely with the Singularity Think Tank, a network of entrepreneurs and academics with deep insights into innovation value chains. Their input forms the foundation of TSG’s proprietary innovation scoring system that quantifies the engagement of companies within a set of curated Singularity Sectors worldwide across all market capitalizations and industries. The Singularity Innovation Score (SI-Score) defines how much value listed companies are generating through Applied Innovation.
More: singularity-group.com
