Trifecta is an expression that derives from horseracing, when bettors try to predict the first three finishers in a race. However, in an investment context, Mr Braun explained, the tech trifecta is not about betting in any way, but about trying to forecast, through fundamental research, which themes or industries might be the most dominant over the long term. “In this case, there are technology and communication-related industries that we follow very closely from an investment point of view,” he said.
For the foreseeable future, semiconductors, cloud computing, and SaaS are seen as being important for a range of new and existing use-cases. “From digital media, to telecommunications, to optical technology, to transport and far beyond, this trifecta is likely to not only have a considerable impact on how new ideas can be brought to bear on our lives, but also how we continue to use existing products,” Mr Braun added.
He explained that companies that own and develop these technologies have a pivotal position with considerable pricing power. As was explored in a recent podcast in this series, pricing power is an important factor in the current inflationary period. Having this pricing power capability enables businesses to pass higher costs on to consumers, without this substantially negatively affecting demand for products. It can also help in negotiations with suppliers.
Leading technologies that can drive market trends are thus of great interest to investors seeking sustainable financial returns in challenging market conditions. Yet, within the tech trifecta there will be beneficiaries and casualties, and Mr Braun discussed the outlook for some of these types of company in the podcast. Furthermore, as the technologies evolve, this changes the business dynamics of their users, with second-level effects for the trifecta companies. “You can find these technologies being used in traditional old economy industries, often in unexpected ways,” Mr Braun said. “This is exciting in itself, and something that investors should keep an eye on,” he said.
This episode is part of the second season of the “Investing For The Long Term” podcasts series featuring Capital Group. These monthly podcasts, produced and hosted by Delano and Paperjam, explain some of the key challenges investors are facing and the investment opportunities related to those challenges. The first series can be accessed here.
To listen to Capital Group’s podcasts, click here.