Category Archives: Thematic Signals

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Thematic Signals highlights confirming data points and items to watch for our list of investing themes. Whether it’s a news item, video clip, or company commentary, we’ve included this full list of items literally “ripped from the headlines.”

US Senators Urge White House to Modernize Bandwidth Standards

US Senators Urge White House to Modernize Bandwidth Standards

A bipartisan group of US Senators published a letter yesterday calling for updated minimum standards for broadband access across the United States.  Current Standards dictate a 25Mbps minimum but even by Federal Communications Commission household broadband guidelines, it is clear that a 25Mbps connection is inadequate for most families even prior to the Covid-19 pandemic. This touches on our Digital Lifestyle theme but plays directly to the core premise of our Digital Infrastructure and Connectivity theme and will provide momentum for this industry along the virtuous circle of increased capacity leading to innovation and increased demand leading to…

Today, U.S. Senators Michael Bennet (D-Colo.), Angus King (I-Maine), Rob Portman (R-Ohio), and Joe Manchin (D-W.Va.) wrote to the Biden Administration urging it to update federal standards for high-speed broadband to reflect modern uses and align those standards across the government.

Source: Bennet, King, Portman, Manchin Urge Biden Administration to Create Modern, Unified Federal Broadband Standard | Press Releases | U.S. Senator Michael Bennet

Cybersecurity Advisory for Public Water Suppliers

Cybersecurity Advisory for Public Water Suppliers

In response to recent disclosures of a water treatment  plant cyber attack State of Massachusetts officials have prepared a review of the attack and a list of resources for municipalities to help combat future attacks.

How public water suppliers can guard against cyber-attacks on water supplies.

Source: Cybersecurity Advisory for Public Water Suppliers

Florida Water Treatment Hack Highlights Infrastructure Weaknesses

Florida Water Treatment Hack Highlights Infrastructure Weaknesses

A combination of lax internal security measures and outdated technology left an Oldsmar, FL water treatment plant vulnerable to hackers who attempted to manipulate treatment chemical levels. Luckily, a worker noticed a mouse pointer moving by itself, observed levels of certain chemicals fluctuating beyond safe parameters and was able to take action to stop the attack. The question now is what can municipalities do to secure infrastructure going forward?

Source: Hack exposes vulnerability of cash-strapped US water plants

Qualcomm Announces Readiness for 5G With 10Gb Modem

Qualcomm Announces Readiness for 5G With 10Gb Modem

While providers are still working on upgrading their networks, Qualcomm has moved ahead and developed a next-gen modem capable of 10Gb throughput.

What’s New:  Qualcomm Technologies, Inc. today announced the Snapdragon X65 5G Modem-RF System, its fourth-generation 5G modem-to-antenna solution. It is the world’s first 10 Gigabit 5G and the first 3GPP release 16 modem-RF system, which is

Source: Qualcomm Announces World’s First 10 Gigabit 5G Modem-RF System

Potentially deadly water system hack in Florida

Potentially deadly water system hack in Florida

Since 2020 and 2021 (so far) haven’t been frightening enough, just days before the Super Bowl a hacker tried to break into a Florida city’s water system in order to increase the amount of sodium hydroxide (aka lye) in the city’s water, a potentially deadly and caustic poison.

Thankfully the hacker wasn’t terribly sophisticated and the nefarious attempts were identified and blocked, but it does expose how our increasingly connected world is increasingly vulnerable to nefarious actors. As technology evolves and public utilities, along with nearly every other aspect of our lives, become more connected, and as the move towards 5G allows for more remote monitoring, more opportunities are available to cause harm.

From our homes to our finances, from our cars to our offices and our communities, the need for cybersecurity is only increasing, expanding the tailwinds behind our Cybersecurity and Privacy investment theme Cybersecurity and Privacy investment theme.

Federal investigators are searching for the hacker behind an attempted poisoning of a Florida city’s water system just days before the Super Bowl.

Source: Hack in Florida city’s water system reveals potential cyber risks of many local communities – CBS News

Tematica investment themes front and center in Super Bowl 2021 Ads

Tematica investment themes front and center in Super Bowl 2021 Ads

One of the wonderful things about thematic investing when it is done right, is the number of recognizable and relatable points of confirmation to be had once an investor has fine-tuned their focus, or as we at Tematica like to say, strapped on your thematic lens. The traditional investor analyzes and assess a variety of data points ranging from monthly and quarterly economic data to survey findings and third-party research reports as well as industry and company specific news and events. We at Tematica do all that as well, given our fundamental and global macro upbringing, but we also look for other confirming data points such as new product introductions, M&A activity as company’s look to reposition their offerings, new partnerships and the like. This has us being those pesky people that slowly walk the aisles of store, be it grocery or other, looking for the new, new thing while also noting how much of the floor and shelf space has been usurped by products that fit hand in glove with our investment themes. That’s pretty much week in week out for the Tematica team but from time to time there is a confirmation blitz, and it so happens the 2021 Super Bowl was just such an event.

While the 2021 Super Bowl may have been a meh event to many, it was still the most watched television event so far this year and was likely at least on par with the 100 million people in the US that have watched each Super Bowl over the last decade. On a global basis, total viewership is estimated to be another 30-50 million more. The sheer magnitude of eye-balls being captured during the game means it’s a big-ticket item for a company to reach all those viewers, roughly $5.5 million in 2021 for a 30-second spot. In today’s digitally connected world, that increasingly favors ad placement with focused online content, it means the Super Bowl is one of the last bastions of major mass marketing in which advertisers can reshape their brand awareness, oftentimes looking to become a household name. And that doesn’t factor in the additional views to be had on YouTube and other video platforms, given the penchant to discuss them as part of pop culture and the latest zeitgeist.

From our perspective, it means companies are looking to use this event to reach viewers they may not normally speak to and reveal to them, sometimes in a subtle way, how they are tilting their businesses into the thematic tailwinds that are unfolding before our very eyes. For Tematica, this year’s Super Bowl ads were a cornucopia of confirming data signals for many of our themes. Here are some examples:

Cleaner Living

Digital Infrastructure & Connectivity

Digital Lifestyle

Unlike many thematic strategists Tematica doesn’t just look for themes that “could be happening if” or the companies that are “skating to where the puck will be.” We focus on the themes arise from structural changes in behavior and spending and the companies whose business models allow them to prosper. And yes, we recognize that neither Verizon (VZ) nor T-Mobile (TMUS) are in our Digital Infrastructure & Connectivity Index, but the focus of their commercials on 5G speak to the one of the key drivers of that theme and index as well as as the corresponding ETF. The bottom line is this – the ad spending on Super Bowl LV while providing pivot points for some, re-enforced to us that our investment themes and indices are on track.

Disclosures

  • Chipotle Mexican Grille (CMG) is a constituent in Tematica Research’s Cleaner Living Index.
Hack The Army 3.0 Starts Today (01/06/2021)

Hack The Army 3.0 Starts Today (01/06/2021)

The Defense Digital Service, a self described “SWAT team of nerds” along with service provider HackerOne are conducting another in a series of bug bounty programs to help organizations identify potential cybersecurity vulnerabilities.

Military and civilian hackers invited to discover and disclose vulnerabilities in digital assets affiliated with the largest branch of the U.S. Military

Source: HackerOne

Thematics Make Outsized Returns in 2020

Thematics Make Outsized Returns in 2020

To say 2020 was a year unlike any other is an understatement on several fronts but despite all of it, equities finished the year higher and once again the major indices were bested by several of Tematica Research’s thematic indices. That includes several of them topping the outsized (but fairly narrowly driven) 43.6% return for 2020 registered by the Nasdaq Composite Index.

Investing between February 19th and March 23rd was a clear example of “catching a falling knife” as the uncertainty of the impact of an unfolding global pandemic set in. While that uncertainty lingered well into the 2nd quarter, some trends started to emerge that forced changes in both consumer behavior and company business models. Going into the 3rd quarter, equities recovered as economic data and earnings were somewhere between better than expected and not as bad a feared. There were some setbacks in September and October as Covid case counts surged, but stocks were once again surging in early November due to a fresh shot of hopium following positive vaccine developments and the conclusion of the presidential election. 

The bulk of the 2020 gains for the Dow Jones Industrial Average and the S&P 500 came during the fourth quarter, despite the year-end haggling over the pandemic relief bill. The same was true with the small-cap heavy Russell 2000, which climbed 31% in the fourth quarter, outpacing the other major market barometers and enabled its positive return for all of 2020. By comparison, the Nasdaq Composite Index, which closed up more than 40% in 2020, benefited from a number of factors, including the pandemic inspired accelerated shift to digital shopping, work from home and learn from home. That pull-forward in both data consumption and data creation fueled incremental network capacity additions and set up the launch of 5G networks and devices in the second half of the year. The same shift, however, led to a year over year uptick in cyberattacks culminating with the Solar Winds attacks that compromised not just federal institutions and large companies, but also platforms of Microsoft (MSFT) and FireEye (FEYE). Those catalysts in particular led to the strong December quarter showing for Tematica’s Digital Infrastructure & Connectivity and Cybersecurity & Data Privacy investing themes.

What’s to come in 2021?

It’s great to enjoy the wins, but as we all know, the stock market is a forward-looking animal and that means not taking too much time to pat ourselves on the back, but rather preparing for what lies ahead. Even as the COVID-19 vaccine is being administered, it will take months before vaccines are readily available to all who need them. Then, and only then will many politicians feel comfortable fully reopening their economies. On January 4, for example, UK Prime Minister Boris Johnson just ordered a third national lockdown to be in place through mid-February. Yes, there is a light at the end of the tunnel, but we continue to see some economic speed bumps to be had — at least at the outset of the March quarter. 

In the coming weeks, President-elect Joe Biden will be sworn into office, and despite the lawsuits, promises of legislative (and other) disruptions, the machinery of government continues to move forward. Perhaps Capitol Hill will hammer out an infrastructure spending bill that will finally address the nation’s crumbling roads, bridges, ports, airports and highways. The ongoing trade issues with China will also need to be addressed, as well as President Biden’s own agenda items.

Before Biden takes the Oval Office, two known items that we’ll contend with are the CES 2021 tech conference and the start of the December-quarter earnings season. Much like other conferences and trade shows held during the pandemic, CES will be a virtual-only event for the first time in its history. It will still feature a number of keynotes that will prognosticate on what we are likely to expect in the coming year on the technology front and “virtual” vendor booths.  

In recent weeks we’ve seen GDP expectations for the start of 2021 drift lower as the pandemic has once again presented a headwind to the economy and efforts to contain it have expanded. We’re also learning of a new strain of Covid-19 that “spreads more efficiently” but “does not seem to evade the protection that’s afforded by vaccines that are currently being used,” according to Dr. Anthony Fauci. At the same time, the distribution of vaccines in the U.S. has gotten off to a slower-than-expected start. Expectations are that vaccine activity will increase in the coming weeks and we’ll be sure to keep tabs on vaccine-related data published on the CDC COVID Data Tracker website. As the number inoculated rises in the coming months, the closer we will be to the economy returning to normal. 

The issue is it will take some time to walk down this path, which to suggests things won’t begin to normalize until the second half of 2021. We also continue to think consensus expectations run the risk of an economic and earnings speed bump in 2021. Supporting that view is the retreat in the Citibank Economic Surprise Index in recent months, and also the slowing growth reported in the IHS Markit December Flash U.S. Composite PMI data. Part of that was due to the fall in new export sales, as renewed lockdowns in key export markets dampened foreign demand.

All of this is summed up rather well by Chris Williamson, Chief Business Economist at IHS Markit who said, “… December has seen companies rein in their expectations, given the higher virus case numbers and tougher lockdown stances adopted in some states. Lockdowns in other countries were meanwhile reported to have hit exports. While vaccine developments mean some of the clouds caused by the pandemic should lift as we head through 2021, rising case numbers continue to darken the near-term outlook.” 

Normally, there tends to be some step down in economic activity from the December quarter to the March one, as consumer spending wanes in comparison to the year-end holiday shopping season. The start of 2021 is expected to see a somewhat larger step down in GDP — to 1.9% during the March quarter vs. the expected 4.1% in the December 2020 quarter, according to data published by The Wall Street Journal’s Economic Forecasting Survey. That same survey goes on to forecast GDP of 3.7% for all of 2021, which means its expectation for the other three quarters of 2021 hover around 4.0%. 

While recent COVID-19 new cases have waned some in aggregate across the U.S., hot spots remain — and that has prompted the extension of virus-fighting measures even as a new strain of the virus that spreads quicker has been found inside the U.S. Similar to what we saw after Thanksgiving, odds are we will see a post-holiday rise in new case counts in early January. Should this come to pass, in all likelihood it will mean more restrictions that will be a headwind to the economy and corporate earnings.

Earnings expectations ahead

On the December-quarter earnings front, data from FactSet shows that so far in the quarter, more S&P 500 companies issued positive earnings guidance than average. More than 80 companies in the index have issued EPS guidance for the December quarter so far and of them, roughly 30 issued negative EPS guidance and more than 55 issued positive EPS guidance. That puts the percentage of companies issuing positive EPS guidance at more than 65%, well above the five-year average of 33%. This sounds positive, but keep in mind that the total number of companies issuing guidance remains well below the five- year average for the quarter and consensus expectation for December quarter EPS is still a year-over-year decline of around 10%.

Digging into the data, we see the S&P sectors that are driving that year-over-year decline for the December quarter.

But again, the stock market is a forward-looking animal, and current expectations call for a 22.7% rebound in S&P 500 EPS during 2021 vs. 2020, as well as a 4.1% increase compared to 2019.

Circling back to the Tematica Research indices that we shared at the outset, their EPS prospects over the 2019-2021 period are multiples greater than for the S&P 500. We attribute this to the pronounced tailwinds that are powering both each of those themes as well as the revenue, EPS and cash flow of the aggregated constituents. One rule of thumb on Wall Street is that faster EPS growth tends to spur multiple expansion, which is a pretty powerful one-two combination for stock prices and index constituents. Reflecting on the below data, it looks like 2021 will be another year of outperformance for several Tematica Research themes and indices.

Pandemic pushes US retail banking into digital era

Pandemic pushes US retail banking into digital era

I’m either blessed or cursed, depending on your perspective, to live a life across both sides of the Atlantic, with operating bases in California, Ireland, and Italy This gives me a rather in-my-face perspective on how the various regions operate and respond to global events. One of the most striking differences is, and sorry to say this, the archaic nature of the US retail banking system. Ask someone in Ireland if they’d like to be paid by check and they’ll look at you like you just asked if they’d like their pint out of a can or from the tap.

It really is astounding that a nation known for its tech hubs has payment processes that have remained unchanged for decades. As with many other things digital, the pandemic accelerated the shift towards electronic banking.

By May, more than 45% of Americans had changed the way they dealt with their bank, a survey of 1,000 people by consultancy FIS found.

According to an article in the Financial Times (referenced below), Well Fargo (WFC) has seen a 35% increase in the number of checks deposited digitally and a more than 50% increase in online wire transactions. The push to get clients to do more digitally is driven in no small part by its promise to investors that it will cut $10 billion in costs.

Bank of America, the country’s second-biggest bank by assets, after Wells Fargo, reports that nearly 40% of the clients’ checks are deposited online. Digital sales of mortgages have accounted for about 60% of the activity in 2020. The bank’s AI chatbot is handling about 400,000 interactions per day now, twice the level a year ago.

As retail banking consumers become increasingly comfortable with digital banking services the need for robust digital infrastructure only becomes greater. Yet another visible tailwind to Tematica’s Digital Infrastructure theme.

Source: Covid nudges US bank customers into digital era | Financial Times

5G and Edge Computing are Becoming a Common Pairing

5G and Edge Computing are Becoming a Common Pairing

While there have been announcements concerning public edge computing buildouts, this agreement is one of a recent few that focuses on private edge computing services that will serve manufacturers and other heavy users of industrial IoT to manage production.

Samsung Electronics on Wednesday signed a partnership with IBM to combine “edge computing” with private 5G networks, the latest tie-up among big technology firms trying to help customers automate production.

Source: Samsung ties up with IBM to combine private 5G with “edge computing”