Each week, a professional investor tells us where he’d put his money. This week: Steve Carle, Edge Investment.
The stockmarket rally since the Brexit vote in June hasn’t masked the fact that investors are finding it difficult to generate returns in such a low-yield environment. This means that sometimes the most overlooked and misunderstood industries are the most attractive.
Take the creative industries, which are perfectly positioned to benefit from the trend towards digitisation and the growth of mobile. The sector is the fastest growing in the UK, now worth £84bn per year to the economy, generating revenues of more than £8m an hour, representing 10% of UK GDP and employing 2.9 million people in the UK. Globally, the sector is worth £1trn, and boasts a growth rate of 6% per annum.
At Edge we identify trends and advances in technology that will affect the creative industries and back businesses that will benefit. These businesses tend to have strong intellectual property portfolios – and recent technologies enable access to, and monetisation of, their content output. The potential to grow and monetise such intellectual property is a hallmark of the UK creative industries, and that growth may have further to run: the sector commonly doesn’t face the effective cap on growth suffered in many other industries because its “content” can be reused, dubbed, rerecorded and reinterpreted for distribution many times over to a huge audience of viewers, players and listeners over digital media.
We are seeing trends towards digitisation, mobilisation and personalisation, and we believe these will continue to drive growth in the creative industries, in areas such as television production, user-generated content and gaming. We think there is great value in those businesses that have direct relationships with their eventual customers. Investors should consider the heralded initial public offering of Spotify. We believe the business will begin to rise to its challenge of increasing its margins either by creating more of its own content or acquiring it, especially in video.
Nintendo (Tokyo: 7974) also looks well-priced, and it has some big new game launches coming up. After years of profit warnings, its new way of delivering entertainment, as witnessed in the recent hit Pokémon Go, shows it has understood how to leverage strong user engagement into profits.
Finally, Entertainment One (LSE: ETO) and DHX (NYSE: DHX), two media companies that produce content for children, are also worth looking at. This is a space we find attractive, and it’s why we have invested in it ourselves. Content aimed at children and families in particular will find big market opportunities globally. It’s clear that intellectual property, which by its very nature is scalable, will be one of the biggest beneficiaries of the trends in new technology.