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Artificial intelligence (AI) was the hot topic of 2023 and the buzz around it continues into 2024. The newsflow suggesting that AI will transform our lives and revolutionise industries.

But what does this mean in terms of investment opportunities? And looking beyond the hype, which companies can actually monetise the potential to deliver meaningful returns for shareholders over the next few years? 

Tech companies lead the way…

Unsurprisingly, Technology companies can access opportunities for higher returns as they are capital light at scale. Typically, this means that the key to entry lies in intellectual capital rather than the amount of dollars spent.

In addition, technology companies benefit from product innovation being more iterative and there being significant benefits from scale through network effects.

This favours larger companies, such as Microsoft, Alphabet and Meta, that have a structural ability to maintain their competitive advantage. Conversely, smaller companies find it harder to disrupt and carve a significant niche within the sector.

…but we are more cautious on media and telecoms.

In contrast, we approach media and telecoms stocks with more reservation.

This is because media companies are exposed to high execution risk and the continual challenge to create superior new content, such as a hit movie or breakthrough video game.

We also believe the barriers to entry for content creation are reducing, moving from established companies to user-generated content that AI could further accelerate. This increases risk. And media is an area where ‘big tech’ has a strategic interest; think Amazon’s Prime platform, Microsoft’s Xbox and Apple’s Music and TV who are all keen to grow market share.

Telecoms, meanwhile, are typically regulated utilities, which limits the level of returns on capital and also their attractiveness to our team.

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The inside story on the leading companies in our global portfolio and why they offer sustainable, long-term growth potential.

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We invest across the AI value chain

Within Global Portfolio Trust we invest in AI across the value chain.  In fact, we have exposed around a quarter of the portfolio to AI through various related themes, including Cloud & AI, Data Gathering, Greenification, Digital Natives, Platforms, Metaverse, and Blockchain. We believe this strategic exposure puts it in the correct position to monetise the transformative potential of AI.

At a company level, we invest in tech firms such as ASML, which provides essential semiconductor technology and benefits from the demand for powerful computing. Nvidia transforms these semiconductors into practical products which need software to successfully accelerate computation. Cadence Design Systems is able to deploy its expertise in electronic design automation to tailor software and hardware to specific corporate needs.

Importantly, it’s wrong to think of AI purely as a ‘tech’ play because its impact extends beyond.

We believe AI gives leaders across industries the opportunity to improve their products to end customers. For example, Nike is using Adobe’s Firefly to bring greater user personalization to its mobile app, or l’Oreal harnessing AI to bring tailored marketing to specific customer profiles, or to offer apps that help customers find the most appropriate products for them.

AI themed portfolio holdings


 

 

In conclusion, our AI investment strategy extends beyond the tech sector, encompassing a diverse array of themes and industries. This strategic approach positions us to capitalise on AI's innovation and potential across the entire value chain, shaping the future of our portfolio returns. As part of that, we highlight the importance of valuation – buying and selling at the right price - which is an ongoing focus for us. 

Conclusion

It’s essential to avoid those parts of the AI theme that have become over-hyped to over-inflated share prices and to concentrate on the structural themes offering long-term growth, and then the companies that can harness the potential to monetise the opportunity.

All information correct as at the date of the article. Holdings are subject to change over time.

Franklin Templeton (martincurrieglobal.com)

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Important Legal Information

This marketing material is intended to be of general interest only and does not constitute legal or tax advice nor is it an offer for shares or invitation to apply for shares of Franklin Global Trust. Nothing in this document should be construed as investment advice. Opinions expressed are the author’s at publication date and they are subject to change without prior notice. Subscriptions to shares in Franklin Global Trust can only be made on the basis of the Investor Disclosure and Key Information Documents, accompanied by the latest available audited annual report and the latest semi-annual report if published thereafter.

Shares in investment trusts are traded on a stockmarket, the share price of which will fluctuate in accordance with supply and demand and may not reflect the value of underlying net asset value of the shares. Depending on market conditions and market sentiment, the spread between purchase and sale price can be wide. As with all stock exchange investments the value of investment trust share purchases will immediately fall by the difference between the buying and selling prices, the bid-offer spread. The value of investments and the income from them may go down as well as up and is not guaranteed. An investor may not get back the amount originally invested.

There is no guarantee Franklin Global Trust will meet its objective. The value of shares in Franklin Global Trust and income received from it can go down as well as up, and investors may not get back the full amount invested. Past performance is not an indicator or a guarantee of future performance. References to industries, sectors or companies are for general information and are not necessarily indicative of GPT’s holding at any one time.

For details of all the risks applicable to Franklin Global Trust, please refer to the Key Information Document, Investor Disclosure Document and the risk section in the Annual Report. These documents can be found on our website: www.martincurrieglobal.com or can be obtained, free of charge from the address below. US Persons are not eligible to invest in Franklin Global Trust. Shares of Franklin Global Trust are available for sale on the London stock exchange.

Investment trusts may borrow money in order to make further investments. This is known as 'gearing' and can enhance shareholder returns in rising markets but, conversely, can reduce them in falling markets. The majority of charges will be deducted from the capital of the company. This will constrain capital growth of the company in order to maintain the income streams.

Any research and analysis contained in this document has been procured by Martin Currie/Franklin Templeton for its own purposes and is provided to you only incidentally. References to indices are made for comparative purposes only and are provided to represent the investment environment existing during the time periods shown. Indices are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. Important data provider notices and terms are available at www.franklintempletondataresources.com. All index data is provided “as is.”