Fund Insights: Disruptors Create Value Opportunities | Mackenzie Investments

Fund Insights: Disruptors Create Value Opportunities


Summary

The Mackenzie Cundill Team is finding ways to make money from stocks that are disruptors in the area of digital transformation. Most investors recognize Amazon, Netflix, and Tesla as companies that are disrupting the retail, entertainment, and automotive industries respectively. However; you won’t find these in any Cundill portfolio because of their steep and sometimes eye-watering valuations. Instead, the team has been seeking great value in lesser-known companies that are leading the charge in the nascent, yet hugely disruptive, area of industrial process digitization.

Global disruptors create investment opportunities

Japan is providing the team with several investment opportunities in global disruptors, at deeply discounted valuations. We believe that investors are currently overlooking disruptive innovators such as two holdings in our portfolios; Mitsubishi Electric Corporation (Mitsubishi)1 and Hitachi, Ltd. (Hitachi)2, and thus not driving up valuations.

We are confident that investors will soon recognize these multinational conglomerates as key drivers of what is often referred to as the Fourth Industrial Revolution. These disruptors have significant exposure to long-term secular growth themes, including the Internet of Things (IoT). The market is focused on the short-term cyclical slowdown, however, we believe these companies’ current valuations more than offset these short-term issues. Longer term, these Cundill holdings, profiled below, should continue to benefit from higher market penetration driven by their global leadership and limited competition.

Mitsubishi

Source: Bloomberg, January 1, 2018 - March 21, 2019

Mitsubishi is one of the largest factory automation equipment providers globally and is a top three player in most categories. The Fourth Industrial Revolution is being driven by the need to reduce labor and production cost (which is rising globally, including in China), and raw material waste, and at the same time, improve the quality of products. IoT is a perfect application for factory automation, and one of the first areas to take advantage of this technology. Mitsubishi provides the brains of the factory with a leading position in both hardware (programmable logic controllers) and software called e-F@ctory. The e-F@ctory software integrates the factory floor with the IT department, allowing for real-time analysis of production data, downtime prediction and prevention, and reduction in development costs. Mitsubishi is also utilizing artificial intelligence via its Maisart technology, which helps improve yields and utilization rates by analyzing production data in real-time and sharing the results between all machines, so they can learn from each other. Overall, Mitsubishi benefits from a global footprint and diversified exposure to many markets. Their remarkably versatile equipment can be found at semiconductor foundries, food and beverage plants, auto assembly plants, and in every part of the smartphone supply chain.

Hitachi

Source: Bloomberg, December 9, 2014 - March 11, 2019

Hitachi is one of Japan’s leading IT consulting firms, whose clients include Japanese and global firms in industries ranging from manufacturing and healthcare to banking and infrastructure. Hitachi is also a leading player in the IoT with its Lumada IoT platform (Lumada), which offers a complete end-to-end “smart” solution to collecting, analyzing, and storing field data. This makes the Company a great option for businesses seeking top-notch IoT technology to help improve and streamline efficiencies, but don't have the resources to implement a solution internally. Lumada’s platform is currently used by organizations in the building and transportation management, security, and energy sector, including various local governments. In the long term, we believe Hitachi will benefit from the rise of “smart” cities where data from infrastructure, transit and vehicles, power grids, etc. is collected in real-time and used to optimize transportation and energy consumption.

Conclusion

The Mackenzie Cundill team is always looking for out of favour stocks that have catalysts to drive share prices higher within a three-to-fiveyear time horizon. We believe Hitachi and Mitsubishi are overlooked by investors who may see them as old-line industrials.

To learn more about Cundill’s value opportunities, please contact your financial advisor.

1 Mitsubishi Electric Corporation is one of the portfolio holdings by Mackenzie Cundill Value Fund and Mackenzie Cundill Value Class

2 Hitachi, Ltd. is one of the portfolio holdings by Mackenzie Cundill Value Fund, Mackenzie Cundill Value Class, Mackenzie Cundill Canadian Security Fund, Mackenzie Cundill Canadian Security Class and Mackenzie Cundill Canadian Balanced Fund

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. The content of this document (including facts, views, opinions, recommendations, and descriptions of or references to products or securities) is not to be used or construed as investment advice, as an offer to sell or the solicitation of an offer to buy, or an endorsement, recommendation or sponsorship of any entity or security cited. Although we endeavour to ensure its accuracy and completeness, we assume no responsibility for any reliance upon it. This document may contain forward-looking information which reflect our or third party current expectations or forecasts of future events. Forward-looking information is inherently subject to, among other things, risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed herein. These risks, uncertainties and assumptions include, without limitation, general economic, political and market factors, interest and foreign exchange rates, the volatility of equity and capital markets, business competition, technological change, changes in government regulations, changes in tax laws, unexpected judicial or regulatory proceedings and catastrophic events. Please consider these and other factors carefully and not place undue reliance on forward-looking information. The forward-looking information contained herein is current only as of March 11, 2019. There should be no expectation that such information will in all circumstances be updated, supplemented or revised whether as a result of new information, changing circumstances, future events or otherwise.