May 23, 2025 • 28 mins
Technology isn't just a sector anymore—it's the driving force reshaping every industry. Whether companies are creating technology or adopting it to avoid disruption, understanding this transformation is crucial for investment success.
Columbia Threadneedle's tech investment approach stands apart through its disciplined focus on three complementary buckets: moat-type businesses with sustainable competitive advantages, secular growth themes identified early, and value opportunities where market prices underestimate business quality. This balanced strategy has consistently generated top-tier returns, with their technology portfolio ranking in Morningstar's top third for 8 of the past 12 years.
What truly distinguishes their approach is patience. With just 7% annual turnover, they allow investments in companies like Microsoft, Apple, Amazon, and NVIDIA to compound over many years. This long-term perspective proves especially valuable when navigating tech's inherent volatility. As portfolio manager Rahul explains, even AI—their largest investment theme since 2016—has experienced two 20% pullbacks in the last 18 months alone.
Recent earnings revealed tech's continued strength, with mega-cap tech growing earnings 28% versus just 9% for the remainder S&P 493. Cloud infrastructure spending is projected to reach $390 billion this year, nearly nine times higher than a decade ago. While tariffs pose the most significant current risk, particularly for semiconductors, the team's diversified approach and deep research capabilities help manage these challenges.
With technology now representing 31% of the S&P 500 and nearly half the Russell 1000 Growth Index, investors increasingly recognize the value of specialist management in this complex sector. Columbia Threadneedle's recently launched Select Technology ETF (SEMI) offers another vehicle to access their expertise alongside their established funds.
Ready to enhance your portfolio with professional technology exposure? Visit Columbia Threadneedle's website to explore their SEMI ETF and discover how their research-driven approach can help navigate technology's opportunities and challenges.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Appreciate another watching this episode of Lead
Lag Live.
I'm excited for thisconversation with the good folks
at Columbia Threadneedle, oneof my clients.
This is a sponsoredconversation by Columbia
Threadneedle.
Got me touching a lot ofdifferent things with people
that really know the ins andouts of thematic investing tech
investing going to get reallyinto the weeds here.
So let's get right into it.
(00:20):
My name is Michael Guy, apublisher of the Lead Lag Report
.
We got three very strongindividuals here from Columbia
Threadneedle.
I'd like Mr McAndrew Jay tointroduce himself.
Talk about his background realquick.
Speaker 2 (00:30):
Thank you very much, michael, and good afternoon
everybody.
My name is Jay McAndrew, headof ETF sales at Columbia
Threadneedle.
We're very excited abouttoday's talk.
Just a couple of quick thingsto open up.
Number one as a franchise,we've crossed the $5 billion
mark.
We're having tremendous successwith our REX R-E-C-S ETF, but
(00:53):
today we're here to talk about areal strength of Columbia
Threadneedle, which istechnology investing, and
specifically highlight not onlyour SEMI ETF, which is the
Select Technology ETF, but alsoour Global Technology Growth
Fund.
And, michael, just to put thisin perspective, rahul, who is
(01:13):
going to be speaking today, isthe portfolio manager of most of
the assets in my portfolio, soif there were personal
conviction, that's where we'regoing to get started today.
So very excited and, as always,michael, we appreciate the
partnership.
We're also joined by PaulShelton, who works with Rahul in
supporting our growth solutions, and he will share some
(01:35):
thoughts about what's oninvestors' minds.
Speaker 1 (01:38):
So that's and Paul.
I'm going to get to you in asecond here, but I want to get
right to Rahul, because ifyou're having that kind of
responsibility, you've got tohave a very strong CV.
So let's talk about yourbackground.
What have you done throughoutyour career?
How'd you get to this point?
Speaker 3 (01:49):
Thank you, michael, and I appreciate the opportunity
.
So I actually started my careerin technology in 1994 as a
sell-side analyst with JP Morgan, covering computer hardware.
After that I had theopportunity to move to the buy
side and I worked for agentleman by the name of Richard
Fullerton who became a greatmentor for me.
He actually showed me anddemonstrated how to really
(02:12):
invest in businesses over thelong term and think about stocks
in terms of businesses.
What was also unique about mybackground when I worked for
Richard was that I was a shortseller.
So I was actually a shortseller during the 1999-2000 tech
bubble and learned a lot duringthat period.
After that I worked for acouple different hedge funds and
(02:33):
then I joined Rubico BostonPartners for seven years, where
I learned the value side, andthen I joined Columbia
Threadneedle Investments andI've been here for 13 years now,
based in San Francisco, runningour global technology growth
strategy.
Speaker 1 (02:50):
And before I go back to you, rahul Paul, a little bit
about your background.
And I got to say it must berefreshing to actually work with
somebody who's a legitimateinvestor.
Speaker 4 (02:59):
Yes, I'm very privileged to work with plenty
of great investors here atColumbia Threadneedle and, as
Jay said at the beginning of thediscussion, certainly
technology is one of our pillarsof strength.
So in my position, I get tolearn something new every day
from the people who are doingthe best in the business at it.
So a little bit about myself.
I've been with ColumbiaThreadneedle since 2006.
(03:21):
I've been primarily within theproduct role, but for well over
a decade as a client portfoliomanager, working on a variety of
strategies, whether it'stechnology, small cap, growth,
investing so I get the view of alot of different asset classes
and I can say technology hasalways been one of the favorite
topics of every advisor thatwe've had the privilege of
(03:43):
talking to.
Speaker 1 (03:44):
So I want to get into big picture, rahul, your
investment philosophy, and Iwant to approach this from a
different perspective than justwhat's the investment philosophy
of the firm.
When I think about investmentphilosophy, I think that the
philosophy changes sometimes bysector and what you're looking
at.
I think for most people, theirinvestment philosophy is
momentum up into the right.
(04:05):
It doesn't matter where it'scoming from.
It often comes from tech.
But given your experience onthe short selling side, on the
investing side, everythingyou've mentioned as far as your
background what exactly is yourinvestment philosophy and how is
that specific to tech?
Speaker 3 (04:18):
Great.
I really appreciate thequestion, michael, because this
is foundational for us.
So our philosophy has been tobuild a global, diversified
strategy that offers a balanceof secular growth opportunities
and what we call valueopportunities, and this
consistent philosophy has reallyhelped us generate strong
risk-adjusted returns over time.
(04:39):
And what I want to emphasize isthat this is the investment
philosophy we put into place inday one, and we're very
process-oriented in our approach.
So, just stepping back, ournumber one criteria is to own
great businesses in our strategy, regardless of market cap or
geographic location.
So what does this actually mean?
(05:00):
We're looking for sustainablecompetitive advantages, high
barriers to entry, high barriersto scale, strong ROA, strong
ROE, and we're looking for themost innovative firms with the
best management teams.
We really gravitate to what Icall moat-type businesses, which
could come in the form of costadvantage, high switching costs,
(05:23):
strong IP, durable brand,global scale pricing, power,
network effects and a durableplatform, and we really try to
avoid businesses that are insecular decline and weak balance
sheets.
So, in terms of portfolioconstruction, what we've done is
put this into three bucketsmoat-type businesses, secular
(05:45):
growth themes and valueopportunities and the common
thread is a focus on goodbusinesses and good management
teams.
In terms of moats, I justdescribed the business
attributes earlier.
Names that we've held for over adecade include Microsoft, apple
, amazon, netflix, avago, visa,mastercard, booking and NVIDIA.
(06:08):
We are long-term investors witha low turnover it's actually 7%
last fiscal year which hascreated good tax efficiency and
compounding for our clients.
We're also thematic investors,so the part of this is, if we
can identify a theme early, ridethe penetration curve over time
(06:28):
.
This has created tremendousshareholder value for our
clients.
Some of the themes we've beeninvested in include cloud,
cybersecurity, digitaltransformation, defense tech,
autonomous driving and AI.
The last bucket is what we callvalue opportunities, and here
we own companies where thevaluation of the companies are
(06:50):
cheaper than the overallstrategy and we believe the
inherent value of the businessshould be higher than the
current stock price.
We tend to avoid businessesthat are in secular decline.
Speaker 1 (07:01):
Paul, when it comes to talking to advisors and
institutional investors, arethey still focused on the AI
theme?
Are there other themes withinthe tech space that you're
hearing more buzz about?
Speaker 4 (07:13):
Absolutely so.
Ai is still on the tip of everyinvestor's tongue and by far
the largest theme within thestrategy.
I know we're holding on togreater detail about it, but
we're not new to AI investing.
This has been our biggest themein the portfolio, going back to
2016.
So when we think about thethemes that Rahul invests in and
(07:33):
he says you know we identifythem early and having the
patience to let them movethrough that penetration curve,
you know that's a reallyimportant thing and I think that
that's one of the benefits ofactive management, where you
know we're able to see some ofthese emerging themes that are
coming into the market andparticipate and build those
stories into the portfoliobefore a lot of other investors
(07:55):
recognize that the change that'sgoing to occur from that level
of innovation.
Speaker 1 (08:00):
On that point, rahul, of emerging themes, talk me
through a little bit how youidentify themes that are
emerging, to be early on thethemes but then, given the low
turnover, is it more a functionof trying to overweight the
companies already in theportfolio that are looking to
more lead into those emergingthemes?
Talk me through how that looks.
Speaker 3 (08:21):
Yeah, michael.
So this is a team effort.
When it comes to resources, ourteam is very fortunate to be
supported by many talentedinvestors at Columbia
Threadneedle Investments, and wehave a deep and experienced
bench of analysts that are basedin Boston and New York.
And what I love about ourcentral research efforts is the
(08:41):
collaboration across sectors andglobally, which helps us
identify these themes.
So I actually was just inBoston recently and spent a ton
of time with our researchanalysts.
Let me give you an example.
So Dave Egan, who's oursemiconductor analyst, puts out
a monthly piece on all thedifferent things.
He's reading podcasts, he'slistened to his notes for
(09:05):
management meetings.
So our research analysts reallyhelp us try to identify these
themes.
And then my job as PM is to say, okay, what inning are we in
this theme, and then notoverstay our welcome.
For instance, cloud is a themethat we've been, that we
identified many years ago, butwe're still fairly early in the
(09:25):
penetration, believe it or not.
You know, ai is a theme thatyou know has these pullbacks.
It actually has had two 20%pullbacks in the last 18 months
and we've stayed with this themeover time because we know it's
not going to be up and to theright, but with the help of our
central research analysts asthey dig into some of the use
(09:45):
cases of AI, et cetera.
Our conviction level remainshigh.
Speaker 1 (09:49):
I always love that analogy of the innings.
Innings presumably you can seein earnings.
So let's talk about earningsfor a bit here and the various
themes, that sort ofintersection, any sort of
interesting insights as far asrecent earnings in some of these
companies, anything in theearnings that would suggest for
late innings, early innings forcertain themes.
Speaker 3 (10:07):
Yeah, we just got through the bulk of Q1 earnings
season.
Going into Q1, there wasmassive uncertainty as worries
about tariffs and trade warswere pretty big overhangs on the
technology space Over the pastfew weeks.
At a high level we've seenstrong earnings from the group
with some pockets of uncertaintydepending on the end market or
(10:30):
consumer cohort.
There were a few clearstandouts.
Megacap Tech reemerged as thedriver of earnings growth in the
Q1 earnings season, excludingNVIDIA, which we report on the
28th of this month.
Q1 earnings for large techstocks grew by 28% versus 9% for
(10:52):
the remaining S&P 493.
A couple of big standouts wereCloud CapEx we heard from all
the hyperscalers that actuallyreiterated their CapEx and Meta
actually increased their CapEx.
Just stepping back CapEx nowfor total cloud is expected to
hit $390 billion this year, upalmost 9x from 10 years ago.
(11:19):
Some of the other standoutswere very strong results from
some of the other leadingsoftware companies such as SAP
and ServiceNow.
In semis we saw strong earningsfrom Taiwan, semi, ti, microchip
and Lam Research.
Both TI and Microchip actuallyare calling for a bottom of the
(11:39):
cycle, which was veryinteresting.
We did see mixed results fromIntel, qualcomm and Samsung.
Within travel, airbnb bookingand Expedia called out some US
traveler weakening.
Airbnb cited Soft inbound intothe US from Canada and booking
said higher and hotel demandactually is more resilient than
(12:02):
some of the lower starproperties.
Expedia just last week did sayUS demand was soft, driven by
declining consumer sentiment asthey saw pressure on some of the
key US inbound corridors.
In payments we saw very goodresults from both Visa and
MasterCard, pointing to a steadyconsumer, while Block
(12:24):
underwhelmed due to cash app andBill cited an uncertain spend
environment for small andmedium-sized businesses.
Speaker 1 (12:31):
You used a good word we should focus on, which is
cycle.
It's the bottom of a cycle.
How should we think about thecycle for tech in the context of
tariffs and just what we'veseen?
At least kind of moreshort-term volatility?
Speaker 3 (12:46):
Yeah, so, as I said earlier, one of the biggest
overhangs on technology sectorhas been the tariffs.
And do the concerns for tariffsoutweigh some of the cyclicality
that we're seeing in some ofthe businesses?
The two areas where thecyclicality of tariffs has maybe
(13:11):
taken a bit of a toll on isperceived in semiconductors,
which actually was the largestunderperforming sector within
technology and some of thee-commerce names.
So if you look at Amazon, forinstance, it had actually been
one of the biggestunderperformers of the MAG-7,
(13:33):
going into some of the relief wesaw over this weekend from
Switzerland.
So the overhang of tariffs isreal and if we think about the
biggest risk in the technologysector, I would say that tariffs
would have to be the one.
And then, just if you look atthe counterpoint to the
cyclicality that you asked about, software is considered less
(13:58):
cyclical and, believe it or not,in the stretch coming into this
tariff relief, we saw softwarehad its best 10-day stretch in
the last 15 years for large-capsoftware and that was driven by
some of the considered moreasset-light business models,
(14:18):
somewhat more recurring andsomewhat more immune to tariffs
versus the semiconductor stocks,which are more cyclically
exposed.
Speaker 1 (14:26):
Paul and maybe Jay too on this.
I think it's worth sort ofaddressing investor sentiment
and nervousness, right, becauseI do believe that when there is
concern around volatility, techbecomes sort of a target because
it's been such a tremendousperformer, right?
So as you talk to allocators,advisors, wealth managers for
(14:51):
those that are leaning moretowards the bearish side of the
asset class equities what do youtell them about investing in
tech?
Speaker 4 (15:00):
Yeah, it's a great question, Michael, and one of
the things I think we have to becandid with is that technology
is one of the more inherentlyvolatile areas of the market,
and so when we approach techinvesting, we do it through that
balanced approach, anddiversification is really
important because we know that alot of investors will always
(15:21):
come to the table when it's ontop of the market, but with that
volatility, unfortunately, theycan get shaken out and move to
the side, and a lot of timesthese pullbacks and these
periods of volatility, whilethey're always scary, have
historically set up for some ofthe better periods of
performance after the fact,because, while the stories are
in the news cycle and you hearabout it, the quality of the
(15:42):
better periods of performanceafter the fact Because, you know
, while the stories are in thenews cycle and you hear about it
, the quality of the businessmodel tends to get overlooked.
I mean, these companies aregenerating earnings, they have
the best balance sheets, goodreturn on invested capital, high
margins.
So, as you know, one of thethings I always think that's
interesting is is a lot of, youknow, people think about tech as
a traditional sector, and Ithink that that's kind of the
(16:05):
wrong way to think about it.
Tech is spiderwebbing intoevery major sector and industry
and as we continue to progressand we see these technological
advancements whether it be AI orwhatever else is next down the
road either you are disruptingthe market by creating
technology, either you aredisrupting the market by
creating technology, or, ifyou're a legacy player and you
(16:25):
don't want to be disrupted, youneed to invest in technology.
So you know, as Rahul wasmentioning, you know we're very
long-term patient investors and,from an investor standpoint,
even when we get these pullbacksand these bouts of volatility,
that consistency is really,really important.
And my favorite stat that Ialways like to share about our
(16:47):
portfolio is that you know,under Rahul's leadership, we've
been running the portfolio sinceJuly of 2012.
We've only had one year out ofthe 12 where we are below median
in Morningstar for our categoryrankings.
Out of the 12, where we werebelow median in Morningstar for
our category rankings and thatyear we were 53rd percentile and
we generated nearly a 50%return.
Eight out of those 12 years,top third.
(17:09):
So the reason why I say that isto benefit from these long-term
gains in tech, want to be onthe right side of the fence.
So diversification, patienceand having a real process that
looks for these quality businessmodels, you can ride through
some of these periods ofvolatility and hopefully
generate significantly betterreturns on the other side.
Michael, I would just add.
Speaker 2 (17:31):
from an investor behavior standpoint, I think
investors are behaving betterand if you just look at the last
six years, they've had anexperience with COVID, where
tech stocks took a hit but, dueto stimulus, rebounded quickly.
And they've had an experience wesaw tech stocks get hit with
(17:52):
rising rates, say back in 23, asthat long duration asset got a
little bit less worthwhile butbounced back in 24.
And now with the tariffoverhang we've also seen them go
down but come roaring back.
And you know most of thefinancial advisors that we speak
with absolutely understandtechnology is the largest sector
(18:12):
.
Throughout their careersthey've seen it grow to be the
largest sector.
Now you have technology pluscommunication services makes it
even bigger and it makes thatthird sector in the S&P, you
know, a distant third becausethe great growth of these
companies.
But I do think that many peoplefeel that the technology that
they're seeing and using, atleast in some capacity, comes to
(18:34):
life through these companiesand again, I just knowing what
destroys wealth over time.
I think the most critical inputto that is bad behavior and I
think the good news is, with thecorrections we've seen in
technology.
To Paul's point is that when wedo see a correction.
The swift bounce back keepspeople in the frame of mind that
(18:55):
they want to stay invested inthese great companies for the
long term and create wealth forthemselves and generational
wealth for their family.
Speaker 1 (19:02):
Rahul, talk me through self-discipline risk
management.
When you're managing to mandate, obviously you've got to stick
to the themes that you'reputting out there in the fund
and the prospectus.
But how do you mitigatevolatility and risk?
Speaker 3 (19:16):
Yeah, so we actually work very closely with our risk
group.
Internally at ColumbiaThreadneedle Investments we have
quarterly risk meetings.
We have a budget of what'scalled a contribution to
tracking error, where a specificname cannot exceed a specific
amount.
So risk controls is paramountin our process.
(19:38):
Other ways, other clues we get.
You know I talked about myexperience as a short seller
that really during that time wewere hyper-focused on balance
sheets.
That's something actuallyWarren Buffett talked about at
his annual meeting just, Ibelieve, a week or so ago, where
you know focusing on thebalance sheet is really
important.
You can see clues wherecompanies may be hiding
(20:03):
potential earning misses,whether it's in prepaid expenses
or capitalized softwareballooning, dsos or inventory
slowing.
So that's part of our riskmanagement is really paying
attention to the balance sheetand cash flow statements.
So those are just a fewexamples, michael.
Speaker 1 (20:19):
Let's talk about that ranking point that Paul
mentioned.
I mean, as we know, there's abunch of ways of getting access
to tech, to AI.
What is it about the secretsauce at Columbia, threadneedle
or Hulu, the way you're managingthese portfolios that results
in that consistency of relativestrength against other
competitors?
Speaker 3 (20:39):
Let's see the secret sauce.
Would one have to be justsurrounded by the team that we
built here at ColumbiaThreadneedle Investments?
I get support globally from, asI said earlier, so many
talented individuals, whetherit's in Boston, new York or
Europe.
There's so many talentedindividuals, whether it's in
Boston, new York or Europe.
We host earning callbacks withall the management teams.
(21:00):
I'll give you a couple examples.
Just in the past few weeks,we've had callbacks with Apple's
CFO, microsoft's IR, asml's IRout of Europe.
These are really important.
I can't emphasize enoughgetting in a seat at the table
with these thought leaders.
When I attend tech conferences,I typically meet with 40 to 50
(21:22):
C-suite companies over thecourse of three to four days
because of the relationshipsthat Columbia Threadneedle
investments have developed overtime.
So I cannot emphasize enoughthe team effort that really
helps our success.
Uh, here at Columbia Thread andYield Investments.
Speaker 1 (21:40):
Paul, you had mentioned this point that, um,
tech's in pretty much everything, right?
Um so when I hear that, my mindgoes to well, why even bother
with, you know, a sort of coreS&P like uh portfolio?
Why not just go into tech?
Because tech is increasinglybecoming more than just tech.
Everything is tech.
At this point, ignore you.
How do allocators think aboutusing tech as an allocation play
(22:07):
?
Speaker 4 (22:08):
It's interesting and I think that that over the last,
you know, three, five, 10 yearshas shifted, because people
were kind of tactically usingsectors and what we've seen is
that the persistent level ofgrowth within the technology and
, to your point, thediversification that we're
seeing across, whether it'ssemiconductors or software or
(22:28):
payment platforms you're findingall these different companies
that are mature to very highgrowth.
You're finding all thesedifferent companies that are
mature to very high growth.
And when you just step back andyou think about the S&P 500, 31%
of the S&P 500 is in tech, by agig sector and even within
growth, the Russell 1000 growthit's around 47%.
(22:49):
So I think one of the storiesand the ways that we've been
working with a lot of advisorsis if your bogey is to beat
these broad-based indices andyou're going to have a bulk of
that within tech, this isprobably a place where you want
to use a specialist.
I mean, if you need to have 30%of your portfolio and beat it,
having a dedicated tech offeringin conjunction with your other
(23:09):
portfolios whether it be passive, other managers I just see that
that's seeing more and moreadoption and that's one of the
reasons why we're so excitedabout the fund and also, you
know, we just recentlytransitioned our new active ETF
at the end of February so we'retrying to bring more ways for
people to bring this you know,intellectual capital and really
(23:30):
that research discipline withintech into their portfolios and
really that research disciplinewithin tech into their
portfolios.
Speaker 1 (23:35):
And, jay, I know you and I have talked a lot about
the research behind Rex, as youmentioned, and other products.
Maybe you should talk broadlyabout Columbia Threadneedle and
the offerings.
I think it'd be good to givethe audience a sense of sort of
suite.
Speaker 2 (23:47):
Well, absolutely.
As I mentioned at the start ofthe call, like any manufacturing
business, we're just in thebusiness of manufacturing
portfolios and client outcomes.
We want to take what we'rereally good at and offer it in
different packages at differentpricing, so investors can choose
the way that they want toaccess Columbia Threadneedle
Investment's investmentintensity.
(24:08):
And so we've had really strongsuccess over the last couple of
years, with accelerating growth.
As I mentioned, our franchiseis now over $5 billion.
The lead of that franchiseright now is Rex, which is a
research-enhanced core solution.
The simple tagline for Rex isthat we like to Windex the index
(24:28):
.
So we take the Russell 1000, wespray our Windex research on it
and we wipe away any stock thatis rated hold sell or strong
sell, and that's resulted in afive-star ETF at 15 basis points
.
And, as you know, we've done anumber of calls on allowing
investors to be more precise intheir discernment around
(24:50):
investing in emerging markets.
So we have XCEM another billiondollar fund, emerging markets.
Core X, china, which allows youto choose your own China in
terms of magnitude and type.
And then we've always talkedabout demographics.
Most EM investors wantdemographics and the tagline now
is really can you do it in ademocracy rather than a
(25:11):
dictatorship, and we have afive-star Indian consumer ETF
ticker, inco, and so those havebeen our lead horses over the
last 18 months.
But we're really excited becauseof what we just talked about
SEMI.
S-e-m-i is the ticker to theColumbia Select Technology ETF
(25:33):
and, as I mentioned to start, wehave a great growth franchise
and technology franchise andRahul is at the head of that,
and so, when we were looking totake another initiative and
launch an extension of a strongbrand within our firm in the
form of an ETF, semi is anatural fit.
So I would expect that Semi isbeginning its onboarding process
(25:57):
at a number of platformsavailable to most, and you're
going to see strong growth outof SEMI.
Speaker 1 (26:04):
And the website where people can learn more about
SEMI.
Speaker 2 (26:07):
I would just look at Columbia Threadneedle, semi or
type in Semi ETF and look forColumbia Threadneedle and you'll
find it right there.
Speaker 1 (26:15):
Appreciate those that listened to this short and
sweet podcast.
I think a lot of interestingthings were said here, certainly
on the tariff and volatility,integration with tech and
allocation.
Based on what Paul and Rahulwere saying here, make sure you
check out ColumbiaThreadneedle's various products,
learn more about Semi and I'llsee you on the next episode of
Lead Lag Live.
Appreciate another watching this episode of Lead
Lag Live.
I'm excited for thisconversation with the good folks
at Columbia Threadneedle, oneof my clients.
This is a sponsoredconversation by Columbia
Threadneedle.
Got me touching a lot ofdifferent things with people
that really know the ins andouts of thematic investing tech
investing going to get reallyinto the weeds here.
So let's get right into it.
(00:20):
My name is Michael Guy, apublisher of the Lead Lag Report
.
We got three very strongindividuals here from Columbia
Threadneedle.
I'd like Mr McAndrew Jay tointroduce himself.
Talk about his background realquick.
Speaker 2 (00:30):
Thank you very much, michael, and good afternoon
everybody.
My name is Jay McAndrew, headof ETF sales at Columbia
Threadneedle.
We're very excited abouttoday's talk.
Just a couple of quick thingsto open up.
Number one as a franchise,we've crossed the $5 billion
mark.
We're having tremendous successwith our REX R-E-C-S ETF, but
(00:53):
today we're here to talk about areal strength of Columbia
Threadneedle, which istechnology investing, and
specifically highlight not onlyour SEMI ETF, which is the
Select Technology ETF, but alsoour Global Technology Growth
Fund.
And, michael, just to put thisin perspective, rahul, who is
(01:13):
going to be speaking today, isthe portfolio manager of most of
the assets in my portfolio, soif there were personal
conviction, that's where we'regoing to get started today.
So very excited and, as always,michael, we appreciate the
partnership.
We're also joined by PaulShelton, who works with Rahul in
supporting our growth solutions, and he will share some
(01:35):
thoughts about what's oninvestors' minds.
Speaker 1 (01:38):
So that's and Paul.
I'm going to get to you in asecond here, but I want to get
right to Rahul, because ifyou're having that kind of
responsibility, you've got tohave a very strong CV.
So let's talk about yourbackground.
What have you done throughoutyour career?
How'd you get to this point?
Speaker 3 (01:49):
Thank you, michael, and I appreciate the opportunity
.
So I actually started my careerin technology in 1994 as a
sell-side analyst with JP Morgan, covering computer hardware.
After that I had theopportunity to move to the buy
side and I worked for agentleman by the name of Richard
Fullerton who became a greatmentor for me.
He actually showed me anddemonstrated how to really
(02:12):
invest in businesses over thelong term and think about stocks
in terms of businesses.
What was also unique about mybackground when I worked for
Richard was that I was a shortseller.
So I was actually a shortseller during the 1999-2000 tech
bubble and learned a lot duringthat period.
After that I worked for acouple different hedge funds and
(02:33):
then I joined Rubico BostonPartners for seven years, where
I learned the value side, andthen I joined Columbia
Threadneedle Investments andI've been here for 13 years now,
based in San Francisco, runningour global technology growth
strategy.
Speaker 1 (02:50):
And before I go back to you, rahul Paul, a little bit
about your background.
And I got to say it must berefreshing to actually work with
somebody who's a legitimateinvestor.
Speaker 4 (02:59):
Yes, I'm very privileged to work with plenty
of great investors here atColumbia Threadneedle and, as
Jay said at the beginning of thediscussion, certainly
technology is one of our pillarsof strength.
So in my position, I get tolearn something new every day
from the people who are doingthe best in the business at it.
So a little bit about myself.
I've been with ColumbiaThreadneedle since 2006.
(03:21):
I've been primarily within theproduct role, but for well over
a decade as a client portfoliomanager, working on a variety of
strategies, whether it'stechnology, small cap, growth,
investing so I get the view of alot of different asset classes
and I can say technology hasalways been one of the favorite
topics of every advisor thatwe've had the privilege of
(03:43):
talking to.
Speaker 1 (03:44):
So I want to get into big picture, rahul, your
investment philosophy, and Iwant to approach this from a
different perspective than justwhat's the investment philosophy
of the firm.
When I think about investmentphilosophy, I think that the
philosophy changes sometimes bysector and what you're looking
at.
I think for most people, theirinvestment philosophy is
momentum up into the right.
(04:05):
It doesn't matter where it'scoming from.
It often comes from tech.
But given your experience onthe short selling side, on the
investing side, everythingyou've mentioned as far as your
background what exactly is yourinvestment philosophy and how is
that specific to tech?
Speaker 3 (04:18):
Great.
I really appreciate thequestion, michael, because this
is foundational for us.
So our philosophy has been tobuild a global, diversified
strategy that offers a balanceof secular growth opportunities
and what we call valueopportunities, and this
consistent philosophy has reallyhelped us generate strong
risk-adjusted returns over time.
(04:39):
And what I want to emphasize isthat this is the investment
philosophy we put into place inday one, and we're very
process-oriented in our approach.
So, just stepping back, ournumber one criteria is to own
great businesses in our strategy, regardless of market cap or
geographic location.
So what does this actually mean?
(05:00):
We're looking for sustainablecompetitive advantages, high
barriers to entry, high barriersto scale, strong ROA, strong
ROE, and we're looking for themost innovative firms with the
best management teams.
We really gravitate to what Icall moat-type businesses, which
could come in the form of costadvantage, high switching costs,
(05:23):
strong IP, durable brand,global scale pricing, power,
network effects and a durableplatform, and we really try to
avoid businesses that are insecular decline and weak balance
sheets.
So, in terms of portfolioconstruction, what we've done is
put this into three bucketsmoat-type businesses, secular
(05:45):
growth themes and valueopportunities and the common
thread is a focus on goodbusinesses and good management
teams.
In terms of moats, I justdescribed the business
attributes earlier.
Names that we've held for over adecade include Microsoft, apple
, amazon, netflix, avago, visa,mastercard, booking and NVIDIA.
(06:08):
We are long-term investors witha low turnover it's actually 7%
last fiscal year which hascreated good tax efficiency and
compounding for our clients.
We're also thematic investors,so the part of this is, if we
can identify a theme early, ridethe penetration curve over time
(06:28):
.
This has created tremendousshareholder value for our
clients.
Some of the themes we've beeninvested in include cloud,
cybersecurity, digitaltransformation, defense tech,
autonomous driving and AI.
The last bucket is what we callvalue opportunities, and here
we own companies where thevaluation of the companies are
(06:50):
cheaper than the overallstrategy and we believe the
inherent value of the businessshould be higher than the
current stock price.
We tend to avoid businessesthat are in secular decline.
Speaker 1 (07:01):
Paul, when it comes to talking to advisors and
institutional investors, arethey still focused on the AI
theme?
Are there other themes withinthe tech space that you're
hearing more buzz about?
Speaker 4 (07:13):
Absolutely so.
Ai is still on the tip of everyinvestor's tongue and by far
the largest theme within thestrategy.
I know we're holding on togreater detail about it, but
we're not new to AI investing.
This has been our biggest themein the portfolio, going back to
2016.
So when we think about thethemes that Rahul invests in and
(07:33):
he says you know we identifythem early and having the
patience to let them movethrough that penetration curve,
you know that's a reallyimportant thing and I think that
that's one of the benefits ofactive management, where you
know we're able to see some ofthese emerging themes that are
coming into the market andparticipate and build those
stories into the portfoliobefore a lot of other investors
(07:55):
recognize that the change that'sgoing to occur from that level
of innovation.
Speaker 1 (08:00):
On that point, rahul, of emerging themes, talk me
through a little bit how youidentify themes that are
emerging, to be early on thethemes but then, given the low
turnover, is it more a functionof trying to overweight the
companies already in theportfolio that are looking to
more lead into those emergingthemes?
Talk me through how that looks.
Speaker 3 (08:21):
Yeah, michael.
So this is a team effort.
When it comes to resources, ourteam is very fortunate to be
supported by many talentedinvestors at Columbia
Threadneedle Investments, and wehave a deep and experienced
bench of analysts that are basedin Boston and New York.
And what I love about ourcentral research efforts is the
(08:41):
collaboration across sectors andglobally, which helps us
identify these themes.
So I actually was just inBoston recently and spent a ton
of time with our researchanalysts.
Let me give you an example.
So Dave Egan, who's oursemiconductor analyst, puts out
a monthly piece on all thedifferent things.
He's reading podcasts, he'slistened to his notes for
(09:05):
management meetings.
So our research analysts reallyhelp us try to identify these
themes.
And then my job as PM is to say, okay, what inning are we in
this theme, and then notoverstay our welcome.
For instance, cloud is a themethat we've been, that we
identified many years ago, butwe're still fairly early in the
(09:25):
penetration, believe it or not.
You know, ai is a theme thatyou know has these pullbacks.
It actually has had two 20%pullbacks in the last 18 months
and we've stayed with this themeover time because we know it's
not going to be up and to theright, but with the help of our
central research analysts asthey dig into some of the use
(09:45):
cases of AI, et cetera.
Our conviction level remainshigh.
Speaker 1 (09:49):
I always love that analogy of the innings.
Innings presumably you can seein earnings.
So let's talk about earningsfor a bit here and the various
themes, that sort ofintersection, any sort of
interesting insights as far asrecent earnings in some of these
companies, anything in theearnings that would suggest for
late innings, early innings forcertain themes.
Speaker 3 (10:07):
Yeah, we just got through the bulk of Q1 earnings
season.
Going into Q1, there wasmassive uncertainty as worries
about tariffs and trade warswere pretty big overhangs on the
technology space Over the pastfew weeks.
At a high level we've seenstrong earnings from the group
with some pockets of uncertaintydepending on the end market or
(10:30):
consumer cohort.
There were a few clearstandouts.
Megacap Tech reemerged as thedriver of earnings growth in the
Q1 earnings season, excludingNVIDIA, which we report on the
28th of this month.
Q1 earnings for large techstocks grew by 28% versus 9% for
(10:52):
the remaining S&P 493.
A couple of big standouts wereCloud CapEx we heard from all
the hyperscalers that actuallyreiterated their CapEx and Meta
actually increased their CapEx.
Just stepping back CapEx nowfor total cloud is expected to
hit $390 billion this year, upalmost 9x from 10 years ago.
(11:19):
Some of the other standoutswere very strong results from
some of the other leadingsoftware companies such as SAP
and ServiceNow.
In semis we saw strong earningsfrom Taiwan, semi, ti, microchip
and Lam Research.
Both TI and Microchip actuallyare calling for a bottom of the
(11:39):
cycle, which was veryinteresting.
We did see mixed results fromIntel, qualcomm and Samsung.
Within travel, airbnb bookingand Expedia called out some US
traveler weakening.
Airbnb cited Soft inbound intothe US from Canada and booking
said higher and hotel demandactually is more resilient than
(12:02):
some of the lower starproperties.
Expedia just last week did sayUS demand was soft, driven by
declining consumer sentiment asthey saw pressure on some of the
key US inbound corridors.
In payments we saw very goodresults from both Visa and
MasterCard, pointing to a steadyconsumer, while Block
(12:24):
underwhelmed due to cash app andBill cited an uncertain spend
environment for small andmedium-sized businesses.
Speaker 1 (12:31):
You used a good word we should focus on, which is
cycle.
It's the bottom of a cycle.
How should we think about thecycle for tech in the context of
tariffs and just what we'veseen?
At least kind of moreshort-term volatility?
Speaker 3 (12:46):
Yeah, so, as I said earlier, one of the biggest
overhangs on technology sectorhas been the tariffs.
And do the concerns for tariffsoutweigh some of the cyclicality
that we're seeing in some ofthe businesses?
The two areas where thecyclicality of tariffs has maybe
(13:11):
taken a bit of a toll on isperceived in semiconductors,
which actually was the largestunderperforming sector within
technology and some of thee-commerce names.
So if you look at Amazon, forinstance, it had actually been
one of the biggestunderperformers of the MAG-7,
(13:33):
going into some of the relief wesaw over this weekend from
Switzerland.
So the overhang of tariffs isreal and if we think about the
biggest risk in the technologysector, I would say that tariffs
would have to be the one.
And then, just if you look atthe counterpoint to the
cyclicality that you asked about, software is considered less
(13:58):
cyclical and, believe it or not,in the stretch coming into this
tariff relief, we saw softwarehad its best 10-day stretch in
the last 15 years for large-capsoftware and that was driven by
some of the considered moreasset-light business models,
(14:18):
somewhat more recurring andsomewhat more immune to tariffs
versus the semiconductor stocks,which are more cyclically
exposed.
Speaker 1 (14:26):
Paul and maybe Jay too on this.
I think it's worth sort ofaddressing investor sentiment
and nervousness, right, becauseI do believe that when there is
concern around volatility, techbecomes sort of a target because
it's been such a tremendousperformer, right?
So as you talk to allocators,advisors, wealth managers for
(14:51):
those that are leaning moretowards the bearish side of the
asset class equities what do youtell them about investing in
tech?
Speaker 4 (15:00):
Yeah, it's a great question, Michael, and one of
the things I think we have to becandid with is that technology
is one of the more inherentlyvolatile areas of the market,
and so when we approach techinvesting, we do it through that
balanced approach, anddiversification is really
important because we know that alot of investors will always
(15:21):
come to the table when it's ontop of the market, but with that
volatility, unfortunately, theycan get shaken out and move to
the side, and a lot of timesthese pullbacks and these
periods of volatility, whilethey're always scary, have
historically set up for some ofthe better periods of
performance after the fact,because, while the stories are
in the news cycle and you hearabout it, the quality of the
(15:42):
better periods of performanceafter the fact Because, you know
, while the stories are in thenews cycle and you hear about it
, the quality of the businessmodel tends to get overlooked.
I mean, these companies aregenerating earnings, they have
the best balance sheets, goodreturn on invested capital, high
margins.
So, as you know, one of thethings I always think that's
interesting is is a lot of, youknow, people think about tech as
a traditional sector, and Ithink that that's kind of the
(16:05):
wrong way to think about it.
Tech is spiderwebbing intoevery major sector and industry
and as we continue to progressand we see these technological
advancements whether it be AI orwhatever else is next down the
road either you are disruptingthe market by creating
technology, either you aredisrupting the market by
creating technology, or, ifyou're a legacy player and you
(16:25):
don't want to be disrupted, youneed to invest in technology.
So you know, as Rahul wasmentioning, you know we're very
long-term patient investors and,from an investor standpoint,
even when we get these pullbacksand these bouts of volatility,
that consistency is really,really important.
And my favorite stat that Ialways like to share about our
(16:47):
portfolio is that you know,under Rahul's leadership, we've
been running the portfolio sinceJuly of 2012.
We've only had one year out ofthe 12 where we are below median
in Morningstar for our categoryrankings.
Out of the 12, where we werebelow median in Morningstar for
our category rankings and thatyear we were 53rd percentile and
we generated nearly a 50%return.
Eight out of those 12 years,top third.
(17:09):
So the reason why I say that isto benefit from these long-term
gains in tech, want to be onthe right side of the fence.
So diversification, patienceand having a real process that
looks for these quality businessmodels, you can ride through
some of these periods ofvolatility and hopefully
generate significantly betterreturns on the other side.
Michael, I would just add.
Speaker 2 (17:31):
from an investor behavior standpoint, I think
investors are behaving betterand if you just look at the last
six years, they've had anexperience with COVID, where
tech stocks took a hit but, dueto stimulus, rebounded quickly.
And they've had an experience wesaw tech stocks get hit with
(17:52):
rising rates, say back in 23, asthat long duration asset got a
little bit less worthwhile butbounced back in 24.
And now with the tariffoverhang we've also seen them go
down but come roaring back.
And you know most of thefinancial advisors that we speak
with absolutely understandtechnology is the largest sector
(18:12):
.
Throughout their careersthey've seen it grow to be the
largest sector.
Now you have technology pluscommunication services makes it
even bigger and it makes thatthird sector in the S&P, you
know, a distant third becausethe great growth of these
companies.
But I do think that many peoplefeel that the technology that
they're seeing and using, atleast in some capacity, comes to
(18:34):
life through these companiesand again, I just knowing what
destroys wealth over time.
I think the most critical inputto that is bad behavior and I
think the good news is, with thecorrections we've seen in
technology.
To Paul's point is that when wedo see a correction.
The swift bounce back keepspeople in the frame of mind that
(18:55):
they want to stay invested inthese great companies for the
long term and create wealth forthemselves and generational
wealth for their family.
Speaker 1 (19:02):
Rahul, talk me through self-discipline risk
management.
When you're managing to mandate, obviously you've got to stick
to the themes that you'reputting out there in the fund
and the prospectus.
But how do you mitigatevolatility and risk?
Speaker 3 (19:16):
Yeah, so we actually work very closely with our risk
group.
Internally at ColumbiaThreadneedle Investments we have
quarterly risk meetings.
We have a budget of what'scalled a contribution to
tracking error, where a specificname cannot exceed a specific
amount.
So risk controls is paramountin our process.
(19:38):
Other ways, other clues we get.
You know I talked about myexperience as a short seller
that really during that time wewere hyper-focused on balance
sheets.
That's something actuallyWarren Buffett talked about at
his annual meeting just, Ibelieve, a week or so ago, where
you know focusing on thebalance sheet is really
important.
You can see clues wherecompanies may be hiding
(20:03):
potential earning misses,whether it's in prepaid expenses
or capitalized softwareballooning, dsos or inventory
slowing.
So that's part of our riskmanagement is really paying
attention to the balance sheetand cash flow statements.
So those are just a fewexamples, michael.
Speaker 1 (20:19):
Let's talk about that ranking point that Paul
mentioned.
I mean, as we know, there's abunch of ways of getting access
to tech, to AI.
What is it about the secretsauce at Columbia, threadneedle
or Hulu, the way you're managingthese portfolios that results
in that consistency of relativestrength against other
competitors?
Speaker 3 (20:39):
Let's see the secret sauce.
Would one have to be justsurrounded by the team that we
built here at ColumbiaThreadneedle Investments?
I get support globally from, asI said earlier, so many
talented individuals, whetherit's in Boston, new York or
Europe.
There's so many talentedindividuals, whether it's in
Boston, new York or Europe.
We host earning callbacks withall the management teams.
(21:00):
I'll give you a couple examples.
Just in the past few weeks,we've had callbacks with Apple's
CFO, microsoft's IR, asml's IRout of Europe.
These are really important.
I can't emphasize enoughgetting in a seat at the table
with these thought leaders.
When I attend tech conferences,I typically meet with 40 to 50
(21:22):
C-suite companies over thecourse of three to four days
because of the relationshipsthat Columbia Threadneedle
investments have developed overtime.
So I cannot emphasize enoughthe team effort that really
helps our success.
Uh, here at Columbia Thread andYield Investments.
Speaker 1 (21:40):
Paul, you had mentioned this point that, um,
tech's in pretty much everything, right?
Um so when I hear that, my mindgoes to well, why even bother
with, you know, a sort of coreS&P like uh portfolio?
Why not just go into tech?
Because tech is increasinglybecoming more than just tech.
Everything is tech.
At this point, ignore you.
How do allocators think aboutusing tech as an allocation play
(22:07):
?
Speaker 4 (22:08):
It's interesting and I think that that over the last,
you know, three, five, 10 yearshas shifted, because people
were kind of tactically usingsectors and what we've seen is
that the persistent level ofgrowth within the technology and
, to your point, thediversification that we're
seeing across, whether it'ssemiconductors or software or
(22:28):
payment platforms you're findingall these different companies
that are mature to very highgrowth.
You're finding all thesedifferent companies that are
mature to very high growth.
And when you just step back andyou think about the S&P 500, 31%
of the S&P 500 is in tech, by agig sector and even within
growth, the Russell 1000 growthit's around 47%.
(22:49):
So I think one of the storiesand the ways that we've been
working with a lot of advisorsis if your bogey is to beat
these broad-based indices andyou're going to have a bulk of
that within tech, this isprobably a place where you want
to use a specialist.
I mean, if you need to have 30%of your portfolio and beat it,
having a dedicated tech offeringin conjunction with your other
(23:09):
portfolios whether it be passive, other managers I just see that
that's seeing more and moreadoption and that's one of the
reasons why we're so excitedabout the fund and also, you
know, we just recentlytransitioned our new active ETF
at the end of February so we'retrying to bring more ways for
people to bring this you know,intellectual capital and really
(23:30):
that research discipline withintech into their portfolios and
really that research disciplinewithin tech into their
portfolios.
Speaker 1 (23:35):
And, jay, I know you and I have talked a lot about
the research behind Rex, as youmentioned, and other products.
Maybe you should talk broadlyabout Columbia Threadneedle and
the offerings.
I think it'd be good to givethe audience a sense of sort of
suite.
Speaker 2 (23:47):
Well, absolutely.
As I mentioned at the start ofthe call, like any manufacturing
business, we're just in thebusiness of manufacturing
portfolios and client outcomes.
We want to take what we'rereally good at and offer it in
different packages at differentpricing, so investors can choose
the way that they want toaccess Columbia Threadneedle
Investment's investmentintensity.
(24:08):
And so we've had really strongsuccess over the last couple of
years, with accelerating growth.
As I mentioned, our franchiseis now over $5 billion.
The lead of that franchiseright now is Rex, which is a
research-enhanced core solution.
The simple tagline for Rex isthat we like to Windex the index
(24:28):
.
So we take the Russell 1000, wespray our Windex research on it
and we wipe away any stock thatis rated hold sell or strong
sell, and that's resulted in afive-star ETF at 15 basis points
.
And, as you know, we've done anumber of calls on allowing
investors to be more precise intheir discernment around
(24:50):
investing in emerging markets.
So we have XCEM another billiondollar fund, emerging markets.
Core X, china, which allows youto choose your own China in
terms of magnitude and type.
And then we've always talkedabout demographics.
Most EM investors wantdemographics and the tagline now
is really can you do it in ademocracy rather than a
(25:11):
dictatorship, and we have afive-star Indian consumer ETF
ticker, inco, and so those havebeen our lead horses over the
last 18 months.
But we're really excited becauseof what we just talked about
SEMI.
S-e-m-i is the ticker to theColumbia Select Technology ETF
(25:33):
and, as I mentioned to start, wehave a great growth franchise
and technology franchise andRahul is at the head of that,
and so, when we were looking totake another initiative and
launch an extension of a strongbrand within our firm in the
form of an ETF, semi is anatural fit.
So I would expect that Semi isbeginning its onboarding process
(25:57):
at a number of platformsavailable to most, and you're
going to see strong growth outof SEMI.
Speaker 1 (26:04):
And the website where people can learn more about
SEMI.
Speaker 2 (26:07):
I would just look at Columbia Threadneedle, semi or
type in Semi ETF and look forColumbia Threadneedle and you'll
find it right there.
Speaker 1 (26:15):
Appreciate those that listened to this short and
sweet podcast.
I think a lot of interestingthings were said here, certainly
on the tariff and volatility,integration with tech and
allocation.
Based on what Paul and Rahulwere saying here, make sure you
check out ColumbiaThreadneedle's various products,
learn more about Semi and I'llsee you on the next episode of
Lead Lag Live.
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