Insync Quarterly Update - September 2020

Updated: 6 days ago

Insync investors enjoyed a positive return from a tumultuous negative month, out-performing the benchmark again. This result continues across all time periods noted below. How we achieve it is quite different to most. Disruption is now a popular term. Insync has 10 years of investing in disruption but with important nuances not shared by others, and this is key to the return and risk outcomes delivered.

The folly of forecasting recoveries

Insync continues generating strong consistent outperformance against the benchmark because of its unique approach to investing in global megatrends.


Whilst many try to correctly forecast economic recovery shapes (in vain), Insync’s invests in highly profitable companies with long runways of growth. They are not dependent on economic cycles or their ‘shape’. A higher probability of identifying winning companies of tomorrow results.

Even Federal Reserve estimates for how far GDP would fall has significantly changed over the last 3 months (along with governments and the IMF etc). The Fed’s latest is a decline of -3.7 % by year’s end, compared to June expectations of -6.5%. A massive divergence! Best of luck if your fund managers are relying on these forecasts in guiding their investment strategy.


A rifle like approach: Insync’s hi-conviction, low trading, megatrend driven process avoids wasting precious time on crystal ball gazing and taking unnecessary timing risk from sitting in cash.


It is important for investors to understand how their fund managers generate returns. Insync’s risk and returns comes from stock-picking (idiosyncratic risk) as opposed to market timing risk (systematic risk).


Market timing's cost

The chart shows the significant opportunity cost of market timing. Missing the best days in the S&P 500 (Jan 3, 2000 - Dec 31, 2019) costs. Sitting on cash was a high-risk approach for fund managers.


$10,000 investment's worth

Recessions average since 1918, 13 months. Markets typically bottom between 3 and 8 months before the end of the recession (post WW2). Current market and economic gyrations are consistent with this long-term history.

NVIDIA’s sits in the real driver’s seat of autonomous cars

How, who and where investors participate in disruption and innovation is crucial. Artificial intelligence (AI) is on everyone's lips presently and for very good reason. In this case, it’s AI that can learn from experience then make decisions unassisted by humans. This is the where, but how and who?


Who? NVIDIA- a $480Bn USD NASDAQ listed firm. Its developed what's called a Graphic Processing Unit (GPU). A very big deal in chip technology and the leading tool for those businesses wanting to train computers in both visual and conversational AI. Take Autonomous Vehicles; their AI requires onboard computers to identify an object and respond accordingly, such as a stop sign. To do so, it must undergo machine learning.


Audi partners with NVIDIA because the GPUs can facilitate, for example, the projection of 1000’s of different stop signs, sometimes partially blocked by objects like trees or in fog etc. to be detected by a car's sensors. NVIDIAs GPU reduces the machine learning time (of a CPU) from months to just days. Results are loaded into the car's electronic memory. Whilst CPUs will still feature in AI, their linear calculations are no match for the multiple, parallel computations performed by a GPU; and just when we were beginning to embed the term 'CPU' in our vernacular, GPU becomes the new standard.


Machine learning has to be across hundreds of thousands of items and situations, that the computer must perform at a level that makes autonomous truck, car, ship or train movements safe and effective. It doesn't have to be perfect- just better than its human equivalent.


Volvo’s truck division is at an advanced stage of AV development. It also partnered with NVIDIA for the same reason. AVs are typically equipped with three types of surveillance devices that are continually mapping its surroundings: encompassing other vehicles, pedestrians, traffic signals, signs, road markings, weather conditions and hazards. These devices and sensors: radar, camera and lasers amongst other things are continually relaying information to the CPU of the computer which, on its own, cannot make split-second decisions required without the assistance of a GPU.


Since VOLVO manufactures vehicles for the transport, mining and recycling industries with large market shares, NVIDIA is poised to participate in the significant growth. It’s expected to be a total addressable market (TAAM) of $30Bn USD within 5 years – form its current base of just $0.5Bn.


The IOT: When Insync searches for companies within an identified Megatrend, in this case, the Internet of Things (IOT), we seek those players that are either relatively immune from, or are already outright agents of, disruption; and in a durable way. NVIDIA ranks highly; including the absolute and proportionate amount of overall revenue it allocates to research and development (R&D) every year. NVIDIA has deliberately specialised and purposely distanced themselves from the only GPU competition (AMD) so effectively that they are creating massive new markets for their products.


NVIDIA is more than just GPUs: It will continue to dominate AI in most sector applications due to its well-established ecosystem of hardware and software along with global reach, but it also has additional game-changing initiatives up its sleeve. It invests (and expenses) a whopping $3Bn USD p.a. designing the most efficient GPUs. Optimising the trade-off between size, speed and energy consumption, NVIDIA developed software infrastructure tools named CUDA.

GPUs + CUDA advances Biotech: With CUDA, engineers can integrate NVIDIA’s GPUs into other industries like the rapidly expanding biotech industry. Here scientists can begin to optimise the design of a molecule such that it binds and neutralises an unwanted protein, minimising potentially dangerous human trials. Imagine if that was presently available for Covid-19 vaccine development.


Massive productivity leaps brought to you by NVIDIA: Elsewhere the GPU is being employed to identify defects in manufacturing, like electronics goods. This has increased productivity by 40% with some global manufacturers. In hospitals where NVIDIA’s GPUs are embedded in imaging equipment, its improving scan quality and increasing the doctor’s accuracy and productivity, ultimately saving lives. It produces a superior ability to detect breast cancer as one example, that even a team of doctors cannot match.


AI at the edge of what AI is so far: It recently broadened its offering by releasing EGX. It enables micro-data processing in physical locations closer to the action of the equipment being used. This reduces the time it takes for the AI to receive data in the form of visuals or conversation, for example, determine in a millisecond the correct response and relay that decision back to the sensor, vehicle, hand-held device or robot.

#performance #megatrends #disruption #futurefocused


Disclaimer

Equity Trustees Limited (“EQT”) (ABN 46 004 031 298), AFSL 240975, is the Responsible Entity for the Insync Global Quality Fund and the Insync Global Capital Aware Fund. EQT is a subsidiary of EQT Holdings Limited (ABN 22 607 797 615), a publicly listed company on the Australian Securities Exchange (ASX: EQT). This information has been prepared by Insync Funds Management Pty Ltd (ABN 29 125 092 677, AFSL 322891) (“Insync”), to provide you with general information only. In preparing this information, we did not take into account the investment objectives, financial situation or particular needs of any particular person. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. Neither Insync, EQT nor any of its related parties, their employees or directors, provide and warranty of accuracy or reliability in relation to such information or accepts any liability to any person who relies on it. Past performance should not be taken as an indicator of future performance. You should obtain a copy of the Product Disclosure Statement before making a decision about whether to invest in this product.

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©2018 by Insync Funds Management Pty Ltd.

Disclaimer

The rating contained in this document is issued by SQM Research Pty Ltd ABN 93 122 592 036 AFSL 421913. SQM Research is an investment research firm that undertakes research on investment products exclusively for its wholesale clients, utilising a proprietary review and star rating system. The SQM Research star rating system is of a general nature and does not take into account the particular circumstances or needs of any specific person. The rating may be subject to change at any time. Only licensed financial advisers may use the SQM Research star rating system in determining whether an investment is appropriate to a person’s particular circumstances or needs. You should read the product disclosure statement and consult a licensed financial adviser before making an investment decision in relation to this investment product. SQM Research receives a fee from the Fund Manager for the research and rating of the managed investment scheme.