Revisiting Ginsberg’s brilliant Nov ’22 tech stock call – says boom not over

Innovative international index fund company GinsGlobal’s South African founder made a very public and as it happens, accurate call back in November 2022. In this interview, we revisit Anthony Ginsberg’s view that the tech wreck was overdone – plus he shares thoughts on what lies ahead for tech stocks, including BizNews model portfolio favourites Nvidia, Palantir and Cloudflare. He spoke to BizNews editor Alec Hogg.

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Relevant timestamps from the interview

00:00 – Introduction
02:36 – Anthony Ginsburg’s Rise of Passive Indexing
05:49 – The Changing Investment Landscape
07:45 – The Importance of Artificial Intelligence
11:25 – Investing in Tech Themes
13:51 – Diversification and Risk Management
17:16 – The Current State of the US Economy
19:36 – Positive Outlook for the US Market
20:50 – Conclusions

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Edited transcript of the interview ___STEADY_PAYWALL___

Alec Hogg: Well, it’s mid-morning here in South Africa as we conduct this interview. Anthony Ginsberg, founder and MD of Ginsberg Global Index Funds, is in Los Angeles, likely ready for bed. Anthony, it’s great to be speaking with you again. I want to revisit our last interview in November 2022, where you made a significant point about not believing everything on social media. Some criticised your remarks, but your predictions regarding tech stocks proved remarkably accurate. Cloudflare and Nvidia, for instance, saw substantial gains since then. Have you seen significant inflows into Ginsberg Global Index Funds since then?

Anthony Ginsberg: Thank you, Alec, for having me back. We primarily focus on broad index investing across ETFs and index funds, including the tech megatrend. However, we maintain a cautious approach, avoiding overexposure to a handful of stocks. The landscape has shifted dramatically over the past decade, with a majority of funds flowing into passive indexing, offering broader exposure. Even with tech themes, we prefer diversification rather than relying heavily on a few stocks. The convergence of various megatrends like AI, cloud, and cybersecurity presents significant opportunities, but timing individual sub-themes is challenging. Companies are increasingly diversifying their portfolios, as seen with Microsoft’s acquisition of Activision for $75 billion, reflecting the overlap between tech and other sectors like gaming and social media. The current market dynamics differ vastly from the dot-com bubble era, with more reasonable valuations and a broader market participation.

Alec Hogg: Anthony, let’s circle back a bit. I recently spoke with another South African focusing on international markets, who highlighted the necessity of reevaluating investment strategies in light of technological advancements. What’s your take on this evolving landscape?

Anthony Ginsberg: Our thesis revolves around the fact that over half of tech companies’ revenues are now global, extending beyond the US. Take AI, for example. While there’s hype and winners and losers in the AI space, the major buyers of AI are the big players in cloud computing like AWS, a division of Amazon. Amazon’s profits largely stem from its cloud computing division, which drives Microsoft’s $3 trillion market cap as well. Cloud computing, particularly Microsoft Azure, is crucial for running algorithms and large language models. The days of keeping everything in-house on personal servers are long gone; outsourcing is the trend.

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Alec Hogg: Let’s pause there, Anthony. Some of our listeners might be feeling overwhelmed. Let’s break it down. What exactly is cloud computing, and why is it significant? Then we can delve into artificial intelligence and its impact on investment markets.

Anthony Ginsberg: Simply put, over the past decade and a half, maintaining in-house IT systems has become increasingly costly and impractical for many businesses. Banks and other regulated entities found themselves spending substantial resources on software engineers just to keep things operational. Outsourcing became the solution. Cloud computing essentially involves renting cutting-edge software from companies like Amazon or Microsoft, bypassing the need for in-house maintenance. It offers flexibility in terms of scaling up or down based on usage, all at a fraction of the cost of maintaining a dedicated IT infrastructure. Now, as for AI, it requires significant computing power to run algorithms and large language models. Most of this work is being outsourced to cloud computing providers, marking a significant shift in how businesses handle their IT needs.

Alec Hogg: Your explanation simplifies a complex topic, Anthony. It’s a practical reality for businesses worldwide. For instance, the technology facilitating our conversation right now relies on servers in Tel Aviv. Now, regarding investment themes, picking winners in rapidly evolving sectors like tech can be daunting. Is your approach with Ginsberg Global akin to diversifying across various themes, akin to private equity?

Anthony Ginsberg: Precisely. We launched an ETF called Tech Megatrend on multiple stock exchanges, selecting 15 leaders across different sub-themes like robotics, AI, cybersecurity, and more. This diversification mitigates risk, ensuring exposure to potential winners while minimizing losses from underperformers. Unlike traditional IT funds, which often lack exposure to evolving sectors like social media and streaming, our ETF encompasses profitable, large-cap players across diverse tech themes. We opt for an equally weighted approach and rebalance every six months to capitalize on opportunities and manage risk effectively. This strategy contrasts with those heavily concentrated in a few stocks, which isn’t favoured by many US institutions seeking broader diversification through a blend of active and passive strategies.

Alec Hogg: So you’ve identified 15 stocks within a specific theme, like robotics, for example. Can you explain how you select these stocks at Gins Global?

Anthony Ginsberg: We base our selection on profitability and revenues, following rules-based criteria. Our Tech Megatrend ETF, listed on the LSE for about six years now, focuses on the top 15 leaders across eight sub-themes, totalling 120 holdings spanning electric vehicles, cloud, cybersecurity, and more. There’s considerable overlap between these themes, as seen in recent M&A activity. We aim for diversification to capture opportunities while managing risks effectively.

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Alec Hogg: It’s quite a comprehensive approach, Anthony. Regarding specific stocks, we’ve got some in our portfolios we’d like your thoughts on: Nvidia, Palantir, and Cloudflare. What’s your take on these?

Anthony Ginsberg: We’re bullish on all three. Nvidia, despite concerns about high PEs, has historically traded around 35-36, currently around 32. Its recent profit and revenue growth is staggering, making its valuation reasonable. Cloud computing, including players like Cloudflare, is poised for continued growth, especially with the projected increase in enterprise spending on cloud and AI. M&A activity is expected to rise in both cloud and cybersecurity sectors. Overall, we’re optimistic about their prospects.

Alec Hogg: Those insights are encouraging, Anthony. Looking ahead, considering we launched the SHIFT portfolio during a challenging market period, what’s your outlook now?

Anthony Ginsberg: We believe in staying invested rather than timing the market. In election years, like this one, US markets tend to rise, albeit not as dramatically as last year. With supportive factors like Fed rate cuts and a healthy economy, we expect IT spending to improve. Digital advertising revenues are also on the rise, benefiting companies like Google and Facebook. Despite challenges, US tech companies are adapting, with some, like Facebook, implementing workforce reductions to boost shareholder value.

Alec Hogg: Anthony Ginsberg from Gins Global offers a high-diversification approach to investing in rapidly growing sectors worldwide. As the world evolves, so do investment opportunities. It’s been a pleasure having you on the show.