DIGIT Digest: Tech Insights from Aberdeen

In this episode of DIGIT Digest, Rebecca Maclean, Co-manager of Dunedin Income Growth Investment Trust, is joined by Jia Chang, Investment Analyst at Aberdeen, to discuss the key drivers shaping tech companies, the impact of artificial intelligence (AI), and opportunities in the UK and European tech sectors.

Transcript

00:00:00:00 - 00:00:09:06

Podcast from aberdeen Investment Trusts.

00:00:09:08 - 00:00:46:22

Rebecca Maclean

Hello, I'm Rebecca Mclean, welcome to DIGIT Digest, a podcast where Ben Ritchie and I discuss the UK and European equity markets and outlook for Dunedin income growth. Today I'm on my own because Ben has been traveling, seeing clients in the US, but I'm delighted to be joined by Jia Chang, technology analyst at aberdeen. We're going to talk about how we approach investing in technology at the firm, the key drivers shaping companies now and in the future, and how Ben and I think about gaining exposure to the space whilst meeting the trust's income, growth and sustainability ambitions.

00:00:47:01 - 00:01:04:22

So welcome, Jia. 

Jia Chang

Thanks, Rebecca. Happy to be here. 

Rebecca Maclean 

So it's been a pleasure working with you over the last couple of years at aberdeen, and you have been an evolution in terms of your role. So should we start with and your background and you tell us a bit more about yourself and how you got to be technology analyst at aberdeen?

00:01:04:24 - 00:01:38:01

Jia Chang

Yeah, of course. So, I joined the firm I think back in 2022. And really, I came in at first as an intern, straight after completing university. Then I went on to the graduate program, joining the active equities team. And I've basically been covering technology ever since. So, right now I'm an analyst, and I cover technology so that includes mainly, you know, software, internet and semiconductors.

00:01:38:09 - 00:01:59:08

So basically across the spectrum, since I joined the team, so you can imagine it's been a very interesting journey for me so far, covering the tech space. 

Rebecca Maclean 

Absolutely. Yeah. We'll sort of move on. We will talk about what's been happening. But maybe in terms of your current responsibilities, do you want to sort of outline what you're doing on a day to day basis.

00:01:59:08 - 00:02:19:09

And you know what it's like sort of working in the research team aberdeen?

Jia Chang

 eah, of course. So as a sector analyst, a typical day would involve a lot of tech as you can imagine. So, you know, focusing on the developments and the news flow in the space, and also focusing on the companies that we're invested in.

00:02:19:11 - 00:02:45:09

So in my role, I would say that there are two complementary functions. So first, I think the most fundamental piece is just understanding the businesses. You know, how they operate and how they work, and so that would mean doing deep dives into the tech companies under my coverage, the market and the industries that they operate in. And also talking to companies across the tech space.

00:02:45:11 - 00:03:14:07

And then, of course, once I've identified, you know, the business drivers, the opportunities, I'll try to quantify those into, numerical outcomes, communicate what that means for the stock and also for the investment case. So, yeah, I would say that it's it's really helpful to get that broad range of views across the different subsectors. And to also cover several companies within, certain subsector.

00:03:14:09 - 00:03:46:02

And I think that the combination of this, has been really important in just helping to build out the mosaic. And then, you know, the other part of the job is just to communicate these insights to the PM’s, to the portfolio managers, and to also communicate and provide our perspective on the changes in the tech space, which happens, you know, quite quickly so that, you know, necessitates more communication, between both sides, I'll say.

00:03:46:13 - 00:04:08:08

And yeah, I’d say that both of these roles, they're complementary since, you know, the the quality characteristics that the funds would be looking for would feed into our research process as an analyst. And so having that active discussion, frequently means that you're, you know, more closely aligning to what the funds are looking for over time.

00:04:08:10 - 00:04:28:05

Rebecca Maclean

Yeah, we have a good level of collaboration between portfolio managers and analysts, don't we, at the firm. So, you know, we use Bloomberg and IB in order to share insights on a sort of a live basis. So when there’s company results in the morning, very often you will post your thoughts, on IB.

00:04:28:05 - 00:04:52:00

And that's really helpful for us to be getting a quick, analysis and response from yourselves on the new news that's coming from the markets. But we also have weekly meetings, weekly research meetings where we will get together, the research analysts and also the portfolio managers to debate and deep dive into stocks. Doing sort of a sector dive, but also going into individual companies as well.

00:04:52:00 - 00:05:11:22

And that's really helpful to sort of continue to, check in with the investment case and, and assess changes and conviction levels. And so there are a number of sort of touchpoints, I suppose, where we would interact between the analysts of PM’s3 in order to make sure that the most, up to date views are reflected in the portfolios.

00:05:11:24 - 00:05:31:12

Jia Chang

Yeah, definitely. And I would say that's not only, you know, communication between the analyst, and the PM’s, as you've mentioned, it’s also, you know, between the different sector analysts. You know, for myself, interacting with someone that's more well-versed within the space as well, that's all been, improving, I would say, over the past couple of years.

00:05:31:20 - 00:05:59:14

Rebecca Maclean

And you've touched on some of these subsectors and the companies which you cover and also the approach to quality and that’s something which we reflect in, Dunedin income growth. We're looking for high quality companies which provide an attractive total return, so capital and income growth. So do you want to talk a bit about how you think about investing in the in the sector and what it is that you are looking for in your buy recommendations?

00:06:00:00 - 00:06:24:14

Jia Chang

So covering tech, it is a really dynamic sector. And, you know, maybe relative to other sectors, I would say that it isn't uncommon to come across in companies with double digit growth rates or high double digit growth rates a year. But then I would say that all of these companies, they come with different levels of volatility, some maybe tied to economic cycles, more than others.

00:06:25:05 - 00:06:54:14

And these companies, they also have different reinvestment opportunities and different sizes of, profit pools to allow them to, reinvest back into the business to sustain that durability of growth. So, so these are some of the key considerations that we will, take into account when we're looking at the different tech companies. And I should say that return on invested capital is, a really important metric for us.

00:06:55:03 - 00:07:35:10

And as long term investors, we try to identify, the sources of sustainable competitive advantages for every company that we own. And so even though that is not, a long list of, you know, sustainable competitive advantages, it can be very different across all the different companies that we own and we cover. So I would say that we, we try to be very, discerning to look for companies that are operating in markets where, you know, there is a secular growth tailwind, where they are able to create value out of, certain technology.

00:07:35:12 - 00:08:02:17

And, and as I've said earlier, to reinvest back into the business to capture those future growth opportunities as well, to sustain that success. So, yeah, those are what we would look for in companies. And then certainly as shareholders, we’ll also consider who captures this value once it's created. And, you know, that could be through buybacks or dividends for example.

00:08:02:19 - 00:08:22:13

Rebecca Maclean

So, I suppose AI has been one of the most important trends shaping technology, you know, and markets, as we've seen through the dominance of the Magnificent Seven over the last couple of years. And, you know, I think it's actually a really fantastic time to be sitting down to talk to you today about the sector, because it's been a lot of volatility in recent weeks.

00:08:22:15 - 00:08:44:06

And, you know, particularly on the back of reports that the Chinese company Deep Seek has developed an advanced AI model, but at significantly lower costs and with less advanced chips. You know, this has raised a number of questions, including looking at the sort of efficacy of CapEx in order to develop models, you know, questions around competition, where it's really seen as a one horse race.

00:08:45:04 - 00:09:11:10

In terms of, you know, who is going to win in AI? But also on the positive side, thinking maybe great optimism around the opportunity for applications and solutions and what they could mean. So, you know, maybe Jia do want to start with sort of how you're seeing the technology landscape evolve and maybe also reflect on recent weeks and whether Deep Seek has changed your views in terms of the opportunity set.

00:09:11:12 - 00:09:39:01

Jia Chang

Yeah. So it is a very topical discussion, as you say. And I should probably start by saying that this AI cycle that we're in now, it is driven by real innovation. You know, for example, what you've seen with the innovations in hardware around GPUs, and the manufacturing of semiconductors, for example. And we think that it will continue to drive major technological transformation over the coming years.

00:09:39:03 - 00:10:02:05

So, so with deep seek what we basically saw, I guess. Well, briefly, what deep seek is, you know, they are a Chinese AI startup and they released a new large language model called R1. And what I guess spooked the market on on that day was that it's basically on par with some of the, the Western models when it comes to certain tasks.

00:10:02:14 - 00:10:23:00

But, you know, there's this number being thrown around which suggests that it is much less compute intensive because of, you know, all of the constraints and all of the export restrictions that, China's working with. So we don't actually know what the actual, number is. But then this has brought the discussion of new reasoning models.

00:10:23:24 - 00:10:59:03

And this shift to test time compute, which is less compute intensive initially, since these models have shifted towards, you know, much more abundant computing inference time or at test time. So then it comes down to whether the decline in price of, so you've got a less expensive commodity now. So that lead to higher volumes. And we do think so we, we think that, a potential implication of this is more cost efficient AI applications being developed and being monetized over time.

00:10:59:15 - 00:11:24:03

And this also has been the view that, a lot of software companies have expressed over this recent, earnings season. So I guess, taking a step back, if we were to bucket the space, you could break it down into, you know, the infrastructure layer. So these are the AI enablers, and that would be yours and conductor companies, that are enabling these large models to be trained.

00:11:24:12 - 00:11:48:14

And it's also where we've seen, quite an explosion of growth opportunity, especially at the leading edge nodes[OO1] driven by the spending in data centers. And, you know, as is the case with all hardware companies, you're bound to see a bit of, lumpiness. But, we do think that there are lasting opportunities for the semiconductor companies.

00:11:48:23 - 00:12:17:09

You know, the likes of ASML, for example. And then maybe moving up the stack, you know, at the next level, there are companies that are building out the platform, and the models which, various consumer or enterprise applications will be building on. And we are seeing this space evolving quite rapidly. And, you know, I think that the leadership that we’re observing at this model layer today, might not be guaranteed to, you know, sustain the same leadership down the line.

00:12:17:09 - 00:12:47:17

So, you know, over here, we we are being very careful and evaluating which companies actually have, a competitive advantage. That is doable. You know, whether it be, having a vast trove of proprietary data or existing access to a huge user base, which can be an advantage in, rolling out new products and then finally, I would say that we have been turning more positive on the software layer throughout, last year.

00:12:48:03 - 00:13:11:12

You know, it's where we think there are compelling investment opportunities with some of these companies that are able to leverage on this technology, as it continues to mature and as past technological transitions would suggest, you know, you start to see the gradual development of new use cases, newer business models, that we have yet to even seen.

00:13:12:06 - 00:13:34:02

And that could be a possibility in the decades to come. And so part of the job, I would say, is, you know, looking for businesses with the right models in place, the right business models in place, to apply these technologies and to use them in ways which could really unlock much bigger value for, these companies in the future.

00:13:34:04 - 00:14:01:19

And so, yeah, we we are expecting to see a shift to more, value creation happening at the application layer. And I would say as well, you know, looking back to the past couple of years or so, there has been an extreme concentration in the market where depending on which index you're looking at, the max seven stocks now make up, you know, 20 to 30% of, the total index.

00:14:01:20 - 00:14:32:07

And they're driving roughly, you know, 60% of total returns. And although this has been mainly driven by strong fundamentals, I would say that we have started to see valuations, moving higher as well over the past year. Despite, you know, still trading at reasonable ranges, I would say, and then in the tech space, I would say at the same time, there's this bifurcation where the AI part of tech has been really robust,

00:14:32:18 - 00:14:59:03

While the non-AI technology names have been dabbling with, a bit of post covid digestion, and also a higher rates environment, and that has created some weakness. So how we're seeing the tech space evolving especially in the recent few earnings Prin from the Mag seven is moderation in earnings estimates and also a more, I guess, muted reaction.

00:14:59:03 - 00:15:25:15

While the cyclical pressures facing the non AI part of tech are starting to at least stabilize. And you know they are reversing in some areas. And you're also seeing rates becoming less of a tailwind for the companies outside of the Mag seven. So what I'm really trying to get at here is, you know, a broadening of the opportunities outside of just mega-cap tech.

00:15:25:17 - 00:15:57:06

Rebecca Maclean

I think that's a really interesting point in terms of the shift that you're seeing, in the AI trade away from, you know, what has been the focus, which has been sort of infrastructure, and there's AI enablers and sort of thinking more about the software layer. But, you know, you've highlighted some of the challenges there in terms of identifying those companies where, you know, it could be that their business models look like they could be materially disrupted and they're losers, but we're not yet know sort of who are going to be those winners, because, you know, the use cases haven't been developed yet and we haven't seen those solutions.

00:15:57:06 - 00:16:17:01

So, you know, it really does require that detailed analysis of the company and the business models, their positions, and their ability to innovate and evolve to the changing landscape that they're seeing. So, you know, sort of really helpful to then have, you know, yourself, Jamie, spending your time thinking about these things and also at a global level.

00:16:17:01 - 00:16:49:11

So, you know, the fact that you covered global tech, really helpful to be able to bring that context to regional companies as well. So, you know, we really do benefit from your, your analysis. When we're thinking about where the best ideas are for Dunedin. And I suppose the second point that you make about broadening out, I think that, you know, helpful as well from a Dunedin income growth perspective, because it's focus on UK and European companies, which really are markets have been left behind through this period of US exceptionalism.

00:16:49:12 - 00:17:12:03

And so, I think if there's more competition or ability for more players to come in and disrupt and innovate, I mean, that would be helpful for equity markets outside of the US. So maybe sort of turning to UK and Europe. So the UK really is not known for technology is it? I mean the sectors less than 2% of the FTSE all share.

00:17:12:23 - 00:17:34:14

It's lower than in Europe which is about 6%. And yeah, but that's still just dwarfed by the US, where technology makes up a third of the S&P 500. But despite that it being a low weight in the index. For the trust we do have a number of names in the sector. And it is our biggest overweight position at a sector level.

00:17:34:14 - 00:17:55:01

So we're 7% overweight the sector. And that's because a lot of the qualities that you've highlighted already in terms of the the quality attributes, in terms of companies exposure to structural growth, companies with strong competitive positions, cash generation, visible earnings and and strong balance sheets. And so there are we know we do find a number of opportunities.

00:17:55:14 - 00:18:18:23

But it has been a shrinking sector for the UK. You know, we've had companies taken out like Aviva recently and Fit SA are moving to the US and the pipeline for IPOs has also been slow. So maybe if we if we talk a bit about UK companies or European companies, where are you seeing the opportunities to invest in technology?

00:18:19:00 - 00:18:45:13 Here 

Jia Chang

So looking at the tech space and the tech companies listed across UK and Europe. So if you look at these companies, a large portion of their revenues are actually generated internationally. So taking ASML for example, they're obviously selling into, the memory makers in South Korea or the Fat Makers in China and in the US.

00:18:46:02 - 00:19:09:13

And so when you're investing in these technology names, I think, you know, it gives quite a nice diversification to not only, different geographies, but then you also having exposure to different, and markets. And I suppose you can, you know what, what is considered tech. So, I'm thinking of the likes of like Relex or Soft Cat, for example.

00:19:10:02 - 00:19:33:24

I guess the industry definition becomes a bit blurred as well, as opposed to, I guess, what you would consider like a typical tech firm. So, what I'm trying to say is that the opportunities to invest in technology in UK and Europe would also, you know, it includes more of the broader the value added resellers or more generally other players within the ecosystem.

00:19:33:24 - 00:19:51:05

Rebecca Maclean

Yeah, and as you mentioned, a couple of names that we have in the trust. So ASML is a holding. We've got Relex, Sage and Soft Cat as well. Which you've mentioned. So those are some of the names that we have. Holding in, in the trust in, in technology.

00:19:51:05 - 00:20:10:22

But as you say, some of these companies are not in the technology sector, pure play, but they are in other sectors, but they're benefiting from similar trends. 

Jia Chang

Yeah, exactly. And it is such early days with AI. So you know, as this technology continues to develop, I think what we could expect is for the application to broaden out into fields outside of tech.

00:20:10:22 - 00:20:38:20

So, for example, the infusion of AI into medical research, you know, having access to more customised treatment programs as a result of this innovation. And I think that's where, for example, in Europe, having high exposure to, when you start to include sectors like healthcare as well as technology. So, you know, more broadly, as you've quoted, tech makes up only, you know, a small percentage of the benchmark of the FTSE.

00:20:39:06 - 00:21:08:07

And, you know, they clearly haven't produced, tech giants, on the scale of their US counterparts. And I think, you know, one of the reasons why there aren't more companies is that you know, firstly, I think the the regulatory approach in Europe tends to be more, it tends to be more proactive. And they've not been shy to enforce regulations, which, promote a more competitive marketplace.

00:21:08:14 - 00:21:35:14

And so if you're a smaller tech startup, this takes up resources to actually comply with these, regulations. So, you know, it makes it harder. And I guess it is a barrier for them to scale in Europe compared to a giant tech firm, where it would hurt much less to prove that you're complying with the regulations. You know, and on top of this, you have, a fundraising environment that is more supportive in America.

00:21:35:16 - 00:22:03:05

So more access to VC funding in the US, and especially for the more risky type of startups as well. So, you know, when you add all of this up, you've got, an existing ecosystem in America that sort of keeps, attracting, you know, startup entrepreneurs. And I think that's one of the reasons why you're seeing this difference in tech exposure between both regions.

00:22:03:07 - 00:22:24:05

Rebecca Maclean

Yeah, I think that's helpful. I mean, the UK isn’t known for tech, but we do have a number of tech hubs in the UK. And, you know, a lot of talent. There are 9.5 million Stem workers in the UK, which is about a third of the workforce. And, you know, we've got excellent education systems too. And technology hubs like London, Edinburgh, Manchester.

00:22:24:17 - 00:22:53:14

So, you know, these should be great areas to be able to produce startups and innovation, to drive new companies. So, I think, you know, there are a number of the building blocks there in order for the UK to continue to excel in technology. But a number of the capital market points, I think, have been headwinds in terms of, thinking about, you know, flows into UK equities, you know, higher interest rates, the valuation of the UK market.

00:22:53:14 - 00:23:12:19

And these have really hurt the UK listed companies and caused some of those to delist or move to the US and, and actually stop new companies coming to market as well. So there is a disconnect there, I think, between the talent and the innovation which is taking place in the UK versus what you're seeing in the stock market.

00:23:13:01 - 00:23:37:02

So it would be helpful that, a number of those headwinds subside. And also that government, you know, who has talked about promoting the digital economy and innovation and productivity, could provide more support for technology in the UK. I mean, one company which, you know, is one of the largest UK technology businesses is Sage.

00:23:37:02 - 00:24:02:15

And we've owned Sage in the trust for about two years now. The company's been on a journey, certainly, and we've seen the growth of the business accelerate over the last couple of years. And it used to sort of grab mid-single digit. And this is an accounting software business, and it's now reporting nine, 10% growth. It's successfully transitioned towards cloud.

00:24:03:05 - 00:24:23:19

And it had an intact acquisition too, which has really bolstered the product portfolio for the group. So that's a company which we've seen a huge amount of change. And it is a leader in its space. So maybe you want to talk about your views on sage, the journey it's been on and the outlook that you see for the business?

00:24:23:21 - 00:24:52:17

Jia Chang

So sage, as you've described they are a UK listed accounting and payroll software company, serving mainly small to mid-sized businesses. So, you know, we like that they've got a very sticky and large customer base, and they've basically got a product called Impact, which has scaled very well in the US. And we see further opportunities for them to expand this into newer markets, such as the UK and Europe.

00:24:52:19 - 00:25:22:06

So yeah, as you say, growth has really, accelerated. And a function of this is because they were transitioning their customers onto the cloud platforms over the last couple of years. And, what happens in that process is that you have your, maintenance revenues that are tied to the licenses that are basically declining over the years. And so, you've got that impact, that drag on top line, over the last couple of years.

00:25:22:08 - 00:25:48:07

But following the successful, transition to the cloud that is becoming less of, of a headwind and instead you are seeing them, you know, being able to sell their new cloud products or Sage Business Cloud, for example, to continue scaling that in the US, where it has already done well. And now to, tap on the opportunities, within UK and Europe, for example.

00:25:48:09 - 00:26:21:05

So, you know, it is quite a limited pool of tech companies with, you know, high and growing dividend yield. And, you know, within this pool, we think sage, for example, if they're growing revenues 9 to 10% a year, with a bit of margin expansion and paying, a 1.5% dividend yield with some share buybacks as well, you know, that that gives us low double digit total returns, which I think is one of the more attractive cases when considering and income opportunity in tech.

00:26:21:05 - 00:26:57:10

And that's why we like sage. 

Rebecca Maclean

Yeah. And another company we have is Soft Cat, which has got a similar total return outlook too. So it is the leading UK value added reseller in technology. So selling software and hardware into UK SMEs, small and mid-sized businesses, but also the public sector. And you know, whilst they're not developing the technology themselves, they are benefiting from that structural growth where technology spend is no longer discretionary for corporate in order to maintain their competitive positions.

00:26:57:12 - 00:27:20:18

And, you know, all the innovations that we're seeing in terms of those software applications, will be rolled out and will be products that a company like Soft Cat would be able to share and facilitate in terms of smaller businesses and, and government being able to access them. So, you know, the company has grown strongly over the last couple of years.

00:27:20:18 - 00:27:42:02

It's done over a double digit gross profit growth over the last decade. And within that, it's been taking market share to become the market leader because of its breadth of offering, but also the the talent that it has in the business and the strong culture that it has. So, the company is cash generative. It's got a net cash balance sheet.

00:27:42:02 - 00:28:05:23

It's growing strongly, and it's able to distribute the majority of its earnings out through dividends. There's an ordinary dividend. And then also it has a special dividend to when when it's net cash reaches a certain level of the balance sheet. So, it's a company which should benefit from a number of similar structural trends that you're seeing in the wider tech space.

00:28:06:09 - 00:28:28:10

And it's probably under the radar in terms of, thinking about a way of playing technology because it's a reseller rather than developing the technology itself. And okay, so maybe if we move on to I mean, you've touched on sort of dividends there and, you know, we the Dunedin income growth has got the mandate to deliver growth and income, but also capital.

00:28:28:15 - 00:29:02:14

And it has a sustainability approach too, which is an overlay on the trust. So, in terms of dividends, do you have any more sort of thoughts in terms of how to capture income in the technology space.

Jia Chang

Yeah, I guess when we think about income, and maybe just return capital to shareholders more broadly within the tech space, what we're seeing is that, you know, tech companies have, you know, mainly chosen buyback programs as a way of offsetting the dilution from issuing share-based comps.

00:29:02:16 - 00:29:28:20

So we've seen that mostly, instead of committing to large dividends. And and the other part of this, I think goes back to, you know, the other primary use cases for the free cash flow that they've generated. So, for example, tech companies would often have reinvestment opportunities, and they would choose to redeploy the cash back into the business or you know, grow through acquisitions, for example.

00:29:29:00 - 00:29:48:12

So there's definitely the element of, you know, where they are seeing the best returns for the capital that they generate, and of course in tech as well, there are lots of new companies that are innovating with something very novel, and they don't necessarily have a cash flow to distribute at that stage of the life cycle.

00:29:48:12 - 00:30:11:18

So you know, that's sort of how I'm thinking about income in tech in general. But, you broadly we want the, the capital allocation policies at companies to be aligned to us as investors. So, you know, if there are returns to deploying cash back into the business, then, you know, it would be great to see the companies reinvest into those opportunities.

00:30:11:18 - 00:30:36:16

But if not, we like to see it being returned to shareholders, you know, whether it's through dividends or buybacks. 

Rebecca Maclean

And in terms of the sustainability approach that we have, for the trust, there are a number of elements to it. So, we're looking to avoid exposure to the parts market, which have got the highest risks in terms of environmental and social themes.

00:30:37:00 - 00:31:02:14

So assessing the the risk that these themes present to a business, but also we’re looking for opportunities and thinking about the companies which are leaders, but also transition businesses. In terms of the sustainability, you know, I know that we integrate ESG quality assessment as part of our analysis on all companies that we do. It's part of, stock note templates.

00:31:02:16 - 00:31:22:23

And so, this will be part of your assessment for all the companies that you cover. So Jia, do you want to talk about sort of what key themes you think are relevant for the technology space and where you see the risks and opportunities from sustainability perspective? 

Jia Chang

Yeah, of course. So, governance especially is is something that we pay attention to.

00:31:22:23 - 00:31:47:00

So, looking at how management teams are incentivized and whether or not it is aligned to our view as a long-term investors. So, is this business managed with long term success in mind? And then we also tend to consider ESG, how each of the E or S, or G factors relates to the operational risks.

00:31:47:02 - 00:32:18:17

So, to give you an example, there's been growing attention on the consequences of European regulation on big tech. And one of the most obvious regulations is around data protection, where, Europe has had a history of data protection rights for consumers. So, if you take GDPR in recent years, for example, and then, you know, going back to the subject of AI and training models, where, you know, having vast amounts of data is so important.

00:32:18:19 - 00:32:47:04

So one of the risks that we would consider, for example, is, you know, what will happen with a potential introduction of new data privacy laws and what that would mean for some of the business models. For tech companies that are reliant on having data to, you know, like power apps recommendation engine, for example. So, you know, when considering the risks, we we would focus on the company's oversight of these things.

00:32:47:04 - 00:33:15:12

And also, how much they've thought about these risks. And in terms of the opportunities, I think some of what we're hearing is tech companies building up their own internal AI capabilities to detect misinformation and harmful content at a much larger scale than it would have previously taken them. And this is a more recent development where these tools are getting more effective.

00:33:16:01 - 00:33:42:07

And so I think all of these point to use the opportunities for companies to, to manage some of these ESG factors, to a certain degree. And I guess, you know, how effective these tools actually turn out to be. It's something that we will find out.

Rebecca Maclean

I mean, that's been a fascinating discussion. I think, you know, a couple of things that have that have come out from it is to, you know, really recognise the quality attributes of the sector.

00:33:42:18 - 00:34:09:04

In terms of the structural growth dynamics, the quality of the competitive moats of some of these businesses, the returns dynamics. And so, you know, it really is a hunting ground for quality investors. But, you know, it's a complicated sector in terms of even just what we're seeing in the last couple of weeks in that shift in views about where the value will be created within the sector, driven by AI.

00:34:09:04 - 00:34:40:14

So shift away from maybe the models themselves and thinking more about the applications. So, you know, the challenge of being able to identify these companies, but, you know, through that bottom up analysis of yourself and Jamie and the team, you have identified a number of compelling opportunities and such as Sage, you know ASML, Relex, which provide a positive total return outlook and probably more capital growth than income, given the high rates of return that these businesses can reinvest in.

00:34:40:14 - 00:35:05:11

So, it's been absolutely excellent to have you on the podcast today to share your insights, and thank you so much for doing so and also for all your hard work and sharing your best ideas with us and and with the other portfolio managers to aberdeen. Thank you Jia. 

Jia Chang

Thank you, Rebecca. Great to be here. 

Rebecca Maclean

And if you'd like to find out more information about Dunedin income growth, you can visit our website on www.dunedinincomegrowth.co.uk

00:35:05:11 - 00:35:20:06

and please don't forget to like and subscribe to the show on your podcast platform of choice.

00:35:20:08 - 00:35:47:08

This podcast is provided for general information only and assumes a certain level of knowledge of financial markets. It is provided for informational purposes only and should not be considered as an offer, investment, recommendation or solicitation to deal in any of the investments or products mentioned herein and does not constitute investment. Research. The views in this podcast are those of the contributors at the time of publication, and do not necessarily reflect those of Aberdeen.

00:35:47:10 - 00:36:14:02

The companies discussed in this podcast have been selected for illustrative purposes only, or to demonstrate our investment management style, and not as an investment, recommendation or indication of their future performance. The value of investments and the income from them can go down as well as up. An investors make it back less than the amount invested. Past performance is not a guide to future returns, return projections or estimates, and provide no guarantee of future results.

 [OO1]Nodes refer to technology nodes - so this is fine