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Mike Judith

Mike joined DNB Asset Management S.A. in 2010. As Managing Director of the Luxembourg-based management company he is in charge of managing the local staff of international sales representatives, client portfolio managers, legal & compliance officers as well as operations. Between 2008 and 2010, he was a Senior Client Representative at Brown Brothers Harriman, the oldest privately-held bank in the United States, managing assets and relationships with global asset managers and financial institutions. Since 2007, he has been lecturing at the Frankfurt School of Finance & Management (Institute of Banking Management) in Germany.


Mike Judith speaks with Julia Kistner of the financial podcast GELDMeisterin about opportunities in the technology sector, the DNB Fund Technology strategy and why it is always good to invest in technology stocks. Either way, you should be more selective in 2023.

Julia Kistner: Technology and Scandinavia generally match well because there is a lot of ventured capital there and also a lot of start-ups in this sector, right?

Mike Judith: I do believe that Scandinavia in general stands for innovation. It is smaller economies. Each economy has its unique characteristics. In Finland it might be the timber industry, technology, in Denmark it's the pharmaceutical industry. In Sweden it's industry, in Norway it's energy, just to name a few examples, aggregated, very well diversified, but on their own small economies with very many market leaders, all of which have to align themselves on the markets outside Scandinavia. They say you have the world markets on a small scale, and because of the small size of your own economies, you have the need to constantly develop your own products, your own services, so that they are able to compete on the world market. And the Scandinavians have been doing that very well for many decades. I would say that this applies to the technology sector just as much as to many other areas. In Norway, tax returns have been filed by SMS, by text message, for many years. One can only dream of that here, and the energy concepts are also very much geared toward renewable energies. Over 80 percent of Norway's electricity needs are covered by renewable energies. So Scandinavia and innovation go together very well.

Julia Kistner: You said you didn't make as much of a loss last year, when technology performed poorly. How did you do things differently?

Mike Judith: As DNB, we've really delivered the remarkable performance of now just under 2% over the course of a year. I think that's extraordinarily good news for our investors, given that a lot of the big technology companies have crashed, that one meta stock is down almost 70%. We had and have, in a nutshell perhaps, a very differentiated approach. To the extent that, on the one hand, we invest very conservatively and valuation-driven. In other words, we kept our hands off these hype flyers, whose valuation levels were no longer at all comprehensible to us on the basis of the fundamental data. We did not allocate any customer funds in this case, i.e. we actively bet against the market, against the benchmark, which in retrospect was a very good decision. Of course, we didn't know when the big market correction would come and we were then one and a half to two years behind the market. But this was deliberate, because we could no longer understand or justify the price drivers or their valuation levels.

The second point of differentiation is that we invest very broadly in technology. We invest not only in IT, but also in media and telecommunications, what used to be called the TMT industry. Within this broad technology market, we have found excellent opportunities.

One stock example, without me making a recommendation here, is that we invested our money in telecom stocks, some of which could be had at a single-digit P/E, where other stocks were in the high double-digit P/E range and had no P/E at all because there were no earnings. And Deutsche Telekom in combination with T-Mobile has done very well during this difficult period. T-Mobile has excellent management, very good spectrum, has benefited from the merger with Sprint, has outperformed Verizon and AT&T, has grown so much that T-Mobile's market capitalization is four, five-sixths of Deutsche Telekom's market capitalization, even though Deutsche Telekom only holds just under half of the shares. In other words, Deutsche Telekom's telecommunications business, its European business, was available at almost zero cost, or at least at a very, very high discount. These were two stocks that, to give you an example, got us through the difficult period very well, and the mere fact that we invested in a risk-conscious manner also saved us, of course, and prevented us from being drawn into this downward spiral. This year we see, or we have seen in the last few months, very good entry opportunities in the Big Techs.

Julia Kistner: Do you generally only invest in companies that are already in the earnings phase, or is that even possible in this segment?

Mike Judith: We try to invest very opportunistically here. And if you were to analyze our portfolio today, we would probably have a growth character. The decisive factor for us is not so much whether we locate ourselves strictly in the value or growth segment, but rather that we can simply flexibly take advantage of the opportunities that arise. And sometimes these are value stocks, sometimes they are stocks that perhaps still have the best part of their future ahead of them. Right now, and this would speak more to the growth nature, we have a lot of gaming stocks in our portfolio. We don't know, as probably everyone else does, who is going to make the race for the famous metaverse. There are also competitors who are already launching funds here to play this trendy metaverse theme. We try to serve that, as we so often do, in the second, not so easily recognizable or maybe even third tier, this theme about the exposure in the gaming sector. Because here we see that the metaverse, which is nothing other than the connection of the digital world with the physical world, is already taking place.

In 2019, a DJ Marshmallow you and I may not know managed to gather over 11 million visitors at a concert. Here's where we had the connection between the physical and digital worlds. There were more than 11 million avatars who came to this concert via the Fortnite platform. But that's just a cautious indication of where we're headed, because we have 5 billion cell phones in circulation. 3 billion gamers that are able to communicate basically every day. We're dealing with a title in Fortnite that has over 100 million monthly active users alone. There are other games that have 600 million monthly active users. These platform effects are the exciting ones, where this connection between digital and physical world is already happening, where this idea of metaverse can already be monetized, and so we have a small gaming basket. There's Activision Blizzard in there, among others, before Microsoft, we don't think entirely coincidentally, made an offer of almost $70 billion at this point.

Julia Kistner: Wie grenzt man diesen Gaming-Bereich ab? Weil Amazon etc. sind ja auch in diesem Bereich tätig. Suchen Sie da Pure Player oder wo gehen Sie in diese Meta-Welt rein?

Mike Judith: For us, it's important that the key value driver is a technological value driver. And with the gaming titles, we have this nice effect of users coming together across the platforms and being able to experience the metaverse already.

Julia Kistner: How does the streaming sector fit into your technology fund?

Mike Judith: The streaming sector is of course highly interesting. Whether streaming services are investable now is, of course, a completely different question, because the highest salaries may no longer be paid in Silicon Valley, but in Hollywood.That's because streaming services have to produce their content, which is very expensive, and you don't have a guarantee of the next blockbuster if you invest heavily. That has to be earned again. There are increases in subscriptions. In other words, whether these streaming services are now investment candidates, we then decide on a case-by-case basis. And it's very important that we don't let ourselves be misled by these hyped-up topics, neither when it comes to the metaverse, nor when it comes to streaming services, nor when it comes to artificial intelligence, all these trendy topics that we're dealing with. And so, looking behind the balance sheet is helpful to understand the business model better.

Julia Kistner: That's a good point now. It's also interesting for investors, so we're going to Chat GPT now. So for them, this is not yet a reason to buy Microsoft now, they also have a stake in the company, but they first look at how this will be reflected in the balance sheet? Or is it possible with a future-oriented technology fund, which will only really do business in the future?

Mike Judith: Both are correct. Whereas I have to say that with Alphabet, Google, and Microsoft, we're dealing with candidates that have been in our portfolio on and off for many, many years, even long-term. What we do as an active investor, and this must also be expected of us, is that we actively manage these positions, that we, without having any new insights, also take profits from time to time when prices are rising, and when prices are falling, something that is at times unexplained to us, we just take advantage of these opportunities to enter. Microsoft and Alphabet are long-time candidates, so to speak, and Microsoft, Alphabet are interesting if only because, of course, they will both play a role in the metaverse. They're different business models. Microsoft has the cloud business on top of that. It has a different corporate structure in terms of users, has of course with Microsoft Office an access to the enterprises, where you could use AI, keyword Chat GPT, perfectly. This means that the AI upgrade for PowerPoint and Microsoft Word and Excel will then be virtually delivered, certainly for an appropriate fee. Against this background, we consider Microsoft to be a very good investment candidate, not only, but also for this reason. However, this AI fantasy is only one detail in the valuation. Much more important for us is: Where are the revenues coming from? From the core business? What is the core of the business? And how is the cloud business doing for Microsoft? And the fact that Chat GPT, or AI, is now added as an option is of course certainly an advantage over Alphabet. They have to find their way into the market with their Bard, although they have also been researching this very topic for years, of course from a defensive defensive position. So for us, this fundamental analysis is really essential. And AI as a buzzword hints at the future options, but whether Bing will prevail with the reinforcement of chat GPT is, of course, a question we can't answer either.

Julia Kistner: Your title here at the Fonds Professionell Congress was "No future without technology". Could you perhaps briefly elaborate on that? And what is the future for technology?

Mike Judith: We have now seen an incredible triumph of technology stocks. Technology stocks have managed to take the S&P 500 from negative to positive territory in the 19s and 2020s. You have to imagine that. So in the S&P 500, at times there were five stocks that lifted the index from negative to positive territory. And that has led to several problems. One is that the technology portion of global portfolios, or at least in the MSCI World, has increased significantly, to over a third, and that has created significant cluster risks for anyone who is passively invested or index-tracking. Not only did you have a technology overweight, but you probably had the same names with a high weighting in the portfolio or multiple times through U.S. exposure. And the question, of course, is: How long can this self-perpetuating victory run continue? There were valid fundamental reasons why technology stocks were so strong, because they showed us their resilience during the lockup years. They kept the economy alive and afloat. And the question, of course, is, were the valuations justified? And that's what we talked about at the beginning, that we felt that at some point the equity valuations had bottomed out and then we decided for us to reduce those positions. Performance then went against us for a while, and we believe that now that valuations have come back very strongly, we've seen fantastic entry opportunities. So I have to say that we feel more comfortable with technology investing today than we did two years ago. So we see a better investment environment for technology stocks than was the case then. And, of course, we firmly believe that what we saw during the crisis also applies to the future, namely that technology solves problems on the one hand and enables productivity gains on the other. In many places, we see that digitization has not yet arrived. A lot has happened in the lockdown, a lot of hardware has been ordered, but the processes can of course still be optimized. And we consider this potential, which Chat GPT or other open-air or AI applications alone offer, to be immense, as is the corresponding monetization potential.

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