What is the biggest recent revolution in technology? We say it’s Artificial Intelligence (AI). The exponential growth of data, the proliferation of the cloud, and the perpetual evolution of artificial neural networks and applications all over the world suggest that we are in the first stages of profound transformation. Yet in a climate of inflation and interest rate hikes, our Echiquier Artificial Intelligence fund has faced some strong headwinds that have detracted from performance. However, we remain convinced that the theme will continue its robust growth.

Economic outlook

In 2022, the equity markets turned in their worst performances since 2008 as soaring inflation forced the central banks to react. US long-term rates more than doubled from 1.5% in early 2022 to 3.5% at the end of January 2023. This rate surge was reflected in the drop in corporate valuation multiples from record levels. In these trying times, we focused on diversifying the portfolio, investing in businesses that use AI to gain a competitive edge and accelerate their growth: Nextera Energy in renewables, healthcare insurer UnitedHealth, and pharmaceutical group AstraZeneca.

Fundamentals

We are positioning the fund all along the value chain of the flourishing AI ecosystem. Upstream is data generation, with companies like Alteryx and Snowflake that clean and leverage data to feed neural networks. These networks are growing like weeds, doubling every two months by NVIDIA’s estimate, one of the fund’s key convictions. The boom in new generative algorithms, including ChatGPT from OpenAI, demonstrates the theme’s potential. Microsoft has acquired a 49% capital stake in OpenAI. We are also staying positioned on cybersecurity, which is still a key issue for businesses, governments and consumers. Our investments in Zscaler and Palo Alto Networks reflect our conviction on this segment.

Investment strategy

In a universe currently made up of more than 400 stocks detected by our semantic algorithms, our qualitative investment process selects the most promising in terms of sustainable growth, strategic leadership, and technological innovation. Among the operators who match our four target profiles – AI Vendors, Users, AI Infrastructure Suppliers and Facilitators – we are prioritizing those for whom this universal technology will have the most substantial amplifying effect. Finally, using strict valuation discipline, we build and manage our positions. In keeping with our comprehensive approach, we’re investing in every size of business, everywhere in the world and in every sector. Today, our conviction-based portfolio is concentrated around some thirty global securities with a high growth profile and significant potential for appreciation on the stock exchange, and which we expect over time will capture the value creation connected with this revolution.

Rolando Grandi, CFA, Fund Manager of Echiquier Artificial Intelligence

Disclaimer: The Fund is mostly invested in equities and is primarily exposed to the risk of capital loss, equity risk, currency risk and discretionary management risk.

The stocks referred to are given by way of example. Neither their presence in the portfolio nor their performance are guaranteed. For more information on the characteristics, risks, and costs of these funds, and before investing, we invite you to read the regulatory documents available on our website at www.lfde.com.