blue - Technology by Bank Vontobel AG

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Technology

Spring Edition 2014

â&#x20AC;&#x153;The speed of technological development is revolutionary.â&#x20AC;? Professor Ian Goldin, Martin School, University of Oxford

Editorial

Dear readers, Technological change shapes our personal and professional lives, changes our habits and needs, and is an essential driver of economic growth. It raises our standard of living by simplifying many things in our everyday life, increasing our mobility, and allowing us improved access to education. In all these ways, it helps us get ahead.

confirmed that he sees the positive aspects predominating. Technological progress is an opportunity for people, and not a substitute for us.

In business, technological progress leads again and again to profound changes in entire value chains and gives rise to new business models. Thus it enhances economic dynamism.

Yours sincerely,

Rapid progress is a challenge for mankind. Depending on our cultural background, we may face individual technologies with scepticism. For Ian Goldin, however, our conversation

I wish you a stimulating read about the many facets of modern technology.

Georg Schubiger, Head of Private Banking

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Man is not replaceable. Technological progress raises our hopes but also stokes our fears. Depending on our cultural background, we perceive developments differently. We exchange views with Professor Ian Goldin on the rapid technological advances and their potential consequences.

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When your clothes think along with you. Wearable technologies can measure, support and correct people at every turn. What already exists and which innovations will change our future: our attempt at an overview.

16 © Gallerystock

Human progress. Astounding facts and figures.

Content

Shaping the future. What innovative minds are working on. New trails are being blazed in medicine, transportation – and pasta.

Competence: New technologies as a challenge – even when investing. Not every company that is founded in someone’s garage has the potential to become a world-class corporation. Research and advice are the basis for successful investing.

Competence: Under the bonnet hums an innovation machine. Shapely bodies attract car buyers around the world. But the really exciting development happening are in the engine compartment. And they are not only exciting for motorists.

Macro: Technology shares are attractive, but require a thorough analysis. In a highly dynamic environment, you have to be vigilant.

26 © Laif

Blue page: News from the Vontobel Group. A roundup of news and events from all our business areas. Vontobel blue 5

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Man is not replaceable. Interview: Patrick Preuss

It is part of our daily lives and helps us in many ways. Yet at the same time it arouses anxieties if it’s not tangible or not understood – or if it will change our lives permanently. This last aspect can be positive as well as negative; it all depends on how we deal with the creative destruction that comes about as a result of continuous progress. Our subject: technology and its impact on our daily lives. Open the newspaper these days and, time and again, you will read about a revolution taking place in information and communication technology. Big Data, the networking of information, mass surveillance, and the Internet of Things will all change our lives dramatically as the future unfolds. However, even though other technological developments may be just as dramatic in terms of their potential consequences, they get relatively short shrift in the media. We spoke with Ian Goldin, Professor of Globbalisation and Development and Director of the Oxford Martin School, about technological progress – its possibilities and also its impact. A research school within the University of Oxford led by Professor Goldin, the Oxford Martin School brings together over 300 scholars dedicated to studying the global challenges and opportunities of the 21st century. Technology is many things “The definition of technology,” says Professor Goldin, “is very broad and encompasses many things. For example, technology includes rubbing two sticks together to make fire. In mankind’s infancy, this was a technological revolution that changed everything.” Today, however, we speak of nanotechnology, biotechnology, food technology, green and red genetic engineering and many others. According to Goldin, technology need not only refer to things. Technology could be virtual, for example, having to do with processes and software. When asked which current developments he finds particularly fascinating at the moment, Goldin replies simply: “Many.” He cites first of all stem cell research, controversial though it may be. Much is expected from this technology, he says: a cure for Parkinson’s disease, diabetes, or paraplegia, as well as the ability to grow human organs. But he is equally fascinated by quantum computers. Even if today they are still predominantly a theoretical concept, far-reaching benefits are foreseen compared to to6 Vontobel blue Theme

day’s computer technology, for example the capability to process huge amounts of data very efficiently, or to create absolutely secure coding systems, or even teleport objects. As a final example, Goldin names nanotechnology. The ability to design and build structures at the atomic or molecular level opens up entirely new possibilities in microelectronics, medicine or agriculture. Despite his enthusiasm for new technologies, he also reminds us, “It’s not mandatory that every new development have a positive impact on humanity. Technology often has two sides, and it’s not always applied for the good of society and mankind.” Which side would win the race between good and bad is not something we can say with any certainty, says the Oxford professor. To usher in the new, the old is destroyed “Progress is always coupled with uncertainty,” says Professor Goldin. “We simply do not know where we will be in five or ten years’ time. One of the impacts of scientific progress can also be creative destruction.” The concept of creative destruction was coined by the economist Joseph Alois Schumpeter, who observed economic change as a chaotic process in which the constant that people aim for is that, in the end, it is not only destruction that remains. When it comes to technological progress, people play a central role as a triggering element, be it as scientists, entrepreneurs or consumers. Not in terms of a personal union, because depending on their personal situation, individuals will each assume a different position, regarding technology from very different angles. “One of the crucial questions is whether people see technology as their friend, or if they are afraid of it,” notes Professor Goldin. “I doubt that society and the economy are prepared for the speed of change. The fabric of society, and its many institutions, only change at an evolutionary pace, whereas the pace of technological development is revolutionary.”

ÂŠ Vincent Fournier, Gallerystock

Acceptance is required Technological progress quickly finds friends and acceptance. Or so you would think. The fact that this is not the case is explained by Professor Goldin by citing the different cultural experiences every society has had with technology. The Japanese, for example, have not been critical of nuclear energy only since Fukushima; rather, their experiences during the Second World War strongly marked the country, giving rise to its negative attitude toward atomic power. As another example of how cultural differences affect acceptance, Goldin mentions genetic engineering, which is viewed positively by large parts of the population in the United States, whilst opinions are divided in Europe – even though genetic engineering could be a key technology in medicine as well as in agriculture, in the fights against diseases or against hunger and poverty. Without downplaying the challenges that progress does engender, Professor Goldin remains convinced of its positive potential

overall. A promising example is the area of collaboration between man and machine. “Five hundred thousand amateur astronomers have joined a crowd sourcing project within the Oxford Martin School, and thanks to the support of machine intelligence they have discovered numerous new galaxies. However, the related technology can do more than just this. For example, it could also be used to conduct a geographic analysis of the number of disposable handkerchiefs or bottles of aspirin that are being sold,” he explains, “which could help identify where a pandemic is potentially breaking out.” Despite many positive opportunities, mistrust and the fear of change can lead to negative reactions to progress. What if, instead of curing a disease, new pandemic diseases were created through new sequencing technologies? What if cybercrime were to hurt an increasing number of people financially, or if technological progress in robotics meant that thousands of individuals would lose their jobs? As Professor Goldin says, “A lot of education and mature discussions are necessary. People need to understand what is hidden behind technologies. Just because there is technological progress does not mean that society will welcome it with open arms. Every society has the right to choose.” Why does progress take place at all? New… groundbreaking… revolutionary. Hardly a day goes by that we do not read about innovations that will change our lives. Many turn out to be a flash in the pan, which may lead to the notion that progress only really comes about when a development is successfully commercialised. Professor Godin disagrees: “Innovation and progress are not necessarily linked to economic benefits. Take for example the Internet. It was not developed because of a business idea. Its use for commercial purposes only occurred in a second phase.” Accordingly, Goldin makes a distinction between original invention and commercialisation. For him, curiosity and the desire of science for knowledge and proof are the critical precursors for progress. Equally so is the need to improve and to help. But the director of the Oxford Martin School also speaks of a paradox: “Progress is made thanks to people and primarily for the benefit of people. At the same time, however, one of the reasons why progress does not proceed faster, or is sometimes even slowed down, is also people oppose it.”

Professor Ian Goldin is Professor of Globalisation and Development and Director of the Oxford Martin School at the University of Oxford. Previously, Ian Goldin was Vice President of the World Bank and prior to that the Bank’s Director of Development Policy. From 1996 to 2001 he was Chief Executive and Managing Director of the Development Bank of Southern Africa and served as an advisor to President Nelson Mandela.

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The state has responsibilities Government plays a central role in conjunction with technological progress. On the one hand, by giving shape to the needed legal and institutional frameworks, it ensures technological capabilities, and on the other hand it promotes innovative processes in science and in the economy at large – ideally, without restricting freedom of manoeuvre through excessive bureaucracy. At the same time, government must create confidence that technological progress will be applied for the good of mankind.

1 Human cells in a laboratory for stem cell research.

3 Research on human genes in the USA.

2 Nanotechnology – nature serves as a model for this technology, for

4 The chip of a quantum computer whose capabilities are still

example in the case of protective surfaces, where one speaks also

doubted by renowned scientists.

of the “lotus effect”.

Professor Goldin makes a comparison with sports: “The government defines the playing field and lays down the rules. It also assumes the role of impartial referee, that is, it monitors the game to make sure it is being played fairly. Because the players are the private sector and citizens. The rules must be interpreted the same way for all the teams.” Goldin explains as well that the government is responsible for ensuring that the grass on the pitch is always green, too. If times are bad, for example, and the government allows its regular upkeep to fall by the wayside, there could be problems.

opinion. “I do not believe that man is replaceable,” he says. True, machines, or technology, can take over certain human activities or augment human beings. Technology can take control over household chores, inform your doctor if you have taken your pills, or replace parts of your body. It also allows us to communicate with other people, sending sound and images thousands of kilometres away. But certain human qualities will probably never be acquired by machines. These include, Goldin says, feelings, friendship, tenderness and care – human interactions that will play an increasingly important role in an aging society. The professor concludes: “I will always trust a person more than a machine with anything related to what makes us human.”

“Progress is always

coupled with uncertainty.”

Man is not replaceable Technological progress allows visions of the future to arise that recall films like “Metropolis”, “1984”, or “The Matrix” – movies in which machines dominate everyday life, or even all of human society. Artificial intelligence degrades people to mere mass production labourers. Will people be able to make their own decisions in the future? On this subject, Professor Goldin has a clear

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5.5

Nobel Prize winners

were, or still are, associated with the ETH in Zurich. Pictured is Nobel laureate Leopold Ruzicka in conversation with fellow Nobel laureate Dorothy Crowfoot Hodgkin, on the occasion of an ETH Zurich 80th birthday celebration.

meters is the diameter of the 660-tonne gold-plated steel ball which hangs between the 88th and 92nd floors of the Taipei 101 Tower in Taiwan’s capital city. Using oil-hydraulic damping elements, it sways to offset movements of the building, which is exposed to around 4,000 earthquakes and typhoons every year.

90%

of all the digital data worldwide was produced in the past two years.

151 bn.

US$

will be the estimated value of the “app economy” in 2017. (Source: kpmg Report)

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hours’ exposure time

were required for the first photographic image on a tin plate to be recorded. This 1826 event took place as the French lawyer Joseph Nièpce aimed his camera out of his office window and captured the world’s oldest preserved photograph, nine years after he had begun experimenting with lithography.

54.9 trillion calculations per second

is the speed of the world's fastest supercomputer, the Tianhe-2, at the National University for Defense Technology in Changsha, China. With this processing speed, it has doubled the performance of its predecessor.

1989 was the year that the World Wide Web was invented by Tim Berners-Lee at CERN in Geneva. It was originally developed for data exchange among scientists at universities and institutions around the world.

More than

years

is how long it took for Albert Einsteinâ&#x20AC;&#x2122;s theory of the laser to be successfully realised, by the American physicist Theodore Maiman.

181,000

1,350

new industrial robots

degrees Celsius

is the temperature that the gas inside an airbag reaches in the first instant after it is deployed.

were sold worldwide in 2012. The application of robotics is especially advanced in the automotive industry.

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Wearable Technology

When your clothes think along with you. Text: Kurt Haupt

People love information, including information about themselves. Thanks to the miniaturisation of technology, documenting your own life has become easier than ever. With wearable computers – minuscule portable computers – you can collect various measurements and data concerning yourself, all the time. The technology used monitors and motivates the user, not only when it comes to sporting activities. These days, it is not only haute couture and luxury accessories that people wear, but more and more, computers as well. Not necessarily to look better, but to learn more about themselves. In the form of bracelets, clips, brooches, special shoes, or even as smart garments, these microcomputers measure and record what their wearers are doing and how well they are doing it – collecting literally millions of measurement data. In especially widespread use today are such digital life companions as activity trackers, which comes in the form of a plastic bracelet. Worn day and night, these devices can already inform their wearers early each morning, for example, how many times they turned over in their sleep the night before – and whether this number represents a good, sound sleep. Such a bracelet not only takes measurements, but also acts intelligently: If you are standing in front of a lift, for example, it vibrates to remind you that you have not yet reached your daily exercise objectives. While you are jogging on your lunch break, the bracelet logs your new best time and immediately posts the information via social media online, so you can share the news of your successful run. In other words, wearable computers not only communicate with their users, but with the outside world, too. Technological teamwork In the case of the widely used sports trackers, the technology is either in the bracelet or else housed in a small, lightweight unit that can be clipped onto the user’s clothing. These tiny devices combine multiple sensors whose data are analysed and stored by a minicomputer in one-second intervals. Special models can reThe bicycle jacket “Sporty Supaheroe” was developed with the help of the Fraunhofer-Institute of Germany. The integrated LED lights are following the movements of the cyclist to adjured the best visibility at night.

cord not only physical movements, but also pulse, temperature, humidity or exposure to UV via sunshine. And the once purely functional devices have long since become fashion items as well, making use of high-quality materials – even gold – where once they were all-plastic. While the first activity trackers on the market could communicate with their wearers by blinking or vibrating, new models boast a number of additional functionalities, communicating their metrics and analyses on a small display. For other functions, however, the trackers need help. Here, data are transmitted wirelessly and in real time to a smartphone which then converts the information into visual representations. Further, the smartphone can combine the tracker’s data stream with information from the satellite navigation system it links to and produce geographically customised information. For example, the route the user just jogged, or the path’s height profile, can be visualized on a map. And because the tracker and the user’s mobile phone work in tandem, incoming calls, e-mails or even share price information can all be signaled on the device on the user’s wrist. If someone wants even more functionalities, all the collected information can be stored, visualised and shared, either online via a website developed by the device’s manufacturer, or through independent sports portals. Comparing results with friends on these Internet portals introduces the element of competition and motivates the user to improve his performance. Anyone who wants can even organise a race against other users, in real time. More than just a sports device The technology used in these wearable microcomputers is evolving rapidly. In particular, the sensors are becoming ever smaller, Vontobel blue Theme 13

more power-efficient, more accurate, and they are bringing together more and more features – all on a device the size of a thumbtack. In a wearable computer, there are typically over a dozen sensors continuously recording data: position sensors (gyroscopes), like a kind of digital spirit level, determine whether you are standing or lying down. Acceleration sensors measure in which direction and how fast you are moving. Magnetic sensors augment these data with compass information. There is room for all of these measurement functions today on a chip that is only a few millimetres in length. A Swiss company has already developed a humidity and temperature sensor which measures only 1.3 x 0.7 x 0.5 millimetres. But wearable computers can do a lot more than simply take measurements of people and their surroundings. Digital pressure gauges are being used as barometres. Brightness and UV sensors measure light and sunshine. Multi-spectrum light sensors detect colour components and can tell the difference between artificial light and daylight. Tiny CO2 sensors measure the ambient air and, if necessary, turn on the ventilation. Pressure sensors worn in a special belt can detect that you are unhealthily sitting in front of your screen, and send you a signal telling you to correct your posture. Hall sensors detect when your head is approaching an obstacle. Although sensors, processors and displays need less and less power, the energy supply remains the Achilles’ heel of wearable computers. However, technology is making rapid progress in this domain as well, beginning with wireless chargers that recharge the device’s battery via induction currents, without physical contact. Energy harvesting goes one step further, allowing devices to harvest electrical energy on their own, whether it is via solar power, via motion-driven mini-dynamos, or through simple changes in temperature. A US research team has already developed energy generators that produce electricity from the movement of the heart or lungs, for example, to power a cardiac pacemaker.

used for exercise programmes for the elderly or for patients in rehabilitation. Designed to be used at home, a smartphone would evaluate the data captured by the shirt and make suggestions for regular movement or rehabilitation exercises. Further application scenarios include adapting this idea for younger target groups, use in day-to-day sporting activities, and for preparing athletes for professional competition. Merely the possibility of being able to monitor respiration shows how diverse the application areas of wearable technology are. Other important medical application areas include, for example, the care of newborns and premature infants, sleep diagnostics and the remote care of patients at home. Supporting people To some extent, existing technology can simply be applied in new areas. If an elderly person wears an activity tracker, for example, it can send an alert in case he has fallen or becomes bedridden. Multifunctional bracelets are in development that can monitor movement, skin temperature, pulse and blood oxygen levels, and then transmit these data via smartphone to the doctor. A current project by Google demonstrates another potential of portable technology: the company is experimenting with a contact lens for diabetics, which evaluates and transmits blood sugar level via lacrimal fluid. Wearable technology can not only improve people’s skills, but even restore them. Glasses that will allow blind people to see are being tested in laboratories now, as well as artificial ears whose users will be able to hear better than healthy people. Researchers at the Swiss Federal Institute of Technology in Lausanne have developed a prosthetic hand that not only gives its user the possibility of movement, but also the sense of touch. Holding an object in this hand, the “wearer” can feel the intensity of its grip. But even healthy people will benefit from wearable technology, for example by extending the scope of their perception. In so-called augmented reality, additional information is seamlessly integrated into what the user sees, hears, and feels. By means of a mini-projector, computerised glasses such as the oft-cited Google Glass add supplemental information into the field of vision of the wearer. This information could include driving directions, information about a building the wearer is looking at, or even the name of a person that the built-in camera in the glasses has recognised. This last function could be a great benefit to Alzheimer’s patients, for example.

“Wearable technology helps

enhance human capabilities.”

The future is called wearable technology No wonder that when it comes to technological possibilities, the range of applications for wearable computers is becoming ever wider: for that reason, experts have extended the term and prefer to speak of “wearable technology”. The fact that we are expected to wear more and more technology on us in future can be illustrated with the following examples. The Fraunhofer Institute for Integrated Circuits IIS has developed a T-shirt that contains measurement technology for electrocardiogrammes (EKGs) and the detection of respiration. Such a shirt could be worn by first responders such as firefighters, and the continuous monitoring of their vital functions via the T-shirt would give them more security when carrying out their dangerous work. Coupled with personal localisation functions, the specific location of each firefighter would also be visible at any time. Equipped with additional sensors, such shirts could be 14 Vontobel blue Theme

Long history, exciting future If you look back, you will find that the combination of sports and computers already has a long history. Already in 1982, the Finnish company Polar sold the first wireless heart rate monitor. A belt worn across the chest measured the heart rate and sent the

information wirelessly to a special wristwatch. Since then, both professional and amateur athletes have been able to check that their heart rate is in the optimal zone with a quick glance at their wrist. And it has been possible to buy sports clothing for more than ten years now with built-in intelligent capabilities – for example, running shoes that transmit the number of paces and speed to a smartphone. It is not surprising that the commercial applications for the technological possibilities described, for the most part, are currently in the field of sports and fitness products, thanks to their mass market suitability and the fact that they have become more attractively priced. The fitness bracelets mentioned above cost only a fraction of the earlier models on the market, yet they provide much more information and greater comfort as well. Examples of possible applications outside the realm of sports show that the potential of wearable technology is far from exhausted. Whether embedded in bracelets, jewellery, eyewear, clothing, or even within the human body, it can provide valuable services geared to improve personal health, individual safety and interpersonal interaction. The market research firm ABI Research predicts that already in 2015, over 160 million wearable devices will be sold.

But wearable technology also opens up new possibilities for a number of other service offerings, not only in the sports sector, medical prevention or the treatment of patients and the elderly. The entertainment industry, retail and telecom companies will also benefit from these tiny portable computers. In the next few years, mobile devices will become even smaller, faster, more intuitive, easier to wear, and full of the most diverse kinds of sensors. By combining relevant applications with the possibility to communicate data via an Internet connection, the Internet of Things will surely be a fertile environment in which many exciting new services will appear. 1 High-tech comprehension tank top measures physical movements and immediately passes them on to the wearer’s app. Anyone can thus measure and optimize their movements themselves, for example a golf swing. 2 An electrical circuit “printed” on the skin and protected by a thin layer of

sprayed-on bandage. It lasts about two weeks, and measures every muscle movement without the wearer even being aware of it. 3 This intelligent running shoe continuously adjusts its cushioning effect to the running surface, as well as to the weight and speed of the runner.

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Shaping the future. Text: Patrick Preuss

Technological development strides forward at an ever faster pace, assuring that products and services are continually being improved. Truly breakthrough technologies arise when researchers blaze new trails – that’s when solutions can sometimes seem very futuristic indeed. Your favourite dish – fresh from the printer Fatto in casa – “homemade” – could take on a whole new dimension in the near future. Indeed, if the Italian food producer Barilla has its way, this new dimension would be the third dimension, as the company is currently conducting research on a 3-D printer for restaurants.

A computer instead of wooden pegs A sphere the size of a tennis ball, a robotics-type arm, a laptop – these are the basic elements of the multi-award winning business idea behind ReHaptix, a start-up which recently won the prestigious competition for young entrepreneurs Venture 2014. People with neurological injuries often suffer from impaired hand function. However, with therapy they can often regain their motor skills. Up till now, a commonly used test used to

The emergence of 3-D printing has given wings to some inspired ideas for products that could be created with this technology: prototypes, machine parts, furniture, prostheses, clothing and much more. Using the innovative coating-based printing process, materials such as plastic, ceramic or metal can be formed into almost any shape.

now we are working on the speed.” Barilla’s goal not to aim for mass production; but rather to sell food printers and cartridges to restaurants.

In the food industry, 3-D printing technology is also of interest. A Dutch research firm is exploring the possibility for the Italian food company Barilla of producing pasta and pizza using a 3-D food printer. “Since the project began, we have made use of some highly developed printers in our laboratories,” says project manager Kjeld van Bommel. “In principle, we can produce any shape, and 16 Vontobel blue Theme

determine manual dexterity has been for patients to pick up nine wooden pegs out of a bowl, one by one, and insert them into the matching holes in a board. The therapist would use a stopwatch to time this process, and afterward make a subjective judgment based on his observations. Neuroscientist Marie-Christine Fluet and banker Sophie Winkler-Payot have digitised this test with the collaboration of the

Rehabilitation Engineering Lab at the ETH. Thanks to various indicators, coordination, muscle weakness, tremors, and the smoothness of the motion can all be assessed numerically. The software makes visible what the eye cannot see. “The digital test allows therapists a much more precise and more objective evaluation than a purely visual assessment,” explains Sophie Winkler-Payot. And, as the test results can more easily be compared over time, they also show progress more clearly – which motivates patients. Futuristic machines as helpers The US robotics company Boston Dynamics has already made a name for itself in the technology sector. It develops and manufactures highly specialised machines that have remarkable capabilities. Cheetah, BigDog, and SandFlea – these are just three of the many forward-looking robots Boston Dynamics has already developed in its 20-year history. The clients of the company range from defence ministries to renowned electronics manufacturers.

With twice the resistance of granite when compressed, and a tensile load twice that of concrete: that is how strong bone is. Even so, demographic developments and our sporty lifestyles have led to an increase in bone defects such as fractures or osteoporosis. In dentistry as well, bone formation is of vital importance, in particular if there is insufficient bone volume available to hold an implant. Today, surgical interventions for bone defects are usually carried out with tissue transplants using bone taken from the patient himself or donor tissue. But this is not ideal, since tissue availability is frequently an issue, and rejection is also a possibility. For these reasons, scientists began to search for synthetic alternatives. “The materials in use today have their limitations,” explains Alexander Philipp, Chief Technology Officer of Zurich Biomaterials. “They are brittle, difficult to shape and bioactive only to a limited degree.” He and his colleagues looked further and found an unusual substitute for bone tissue. Made of a biodegradable polymer, the implant looks like cotton wool and was dubbed Bonewool. “The synthetic tissue is flexible, elastic and compressible, and if necessary can easily be removed again,”

“We love to create innovative machines that bring together advanced control systems, sophisticated mechanical designs, and exceptional capabilities,” the company pronounces. The robot “BigDog”, for example, is a heavy, four-legged machine that can carry loads through rough terrain. “SandFlea” is small and based on wheels, and can jump some nine metres in the air. “Cheetah”, which functions based on the movements of

Wool for the bones To take a really big step forward, you have to completely change direction – that is the motto of the founders of Zurich Biomaterials. In the future, they want to mend broken bones with something that looks like a piece of cotton wool. They call it “Bonewool”.

a feline predator, holds the world’s record for the fastest running robot, at just under 29 kilometres an hour. The company is currently working on human-like models that are well-suited, for example, to carry out work following natural disasters or nuclear accidents.

explains Philipp. In addition, Bonewool is bioactive and antibacterial, and thanks to its outstanding technological properties is setting new standards for handling and compatibility.

At the end of 2013, the company was acquired by the Internet giant Google. Vontobel blue Theme 17

Macro

Focus on technology winners, but first choose carefully. Text: Andreas Nigg, CFA Head Equity & Commodity Strategy

In the world of technology, missing a trend can transform a top-notch company into a digital dud – as Kodak’s 2012 bankruptcy has shown. While opportunities for investors seem abundant, one should not forget that tech companies need to earn their high valuation by constant innovation. Compelling business ideas in the technology sector have been very handsomely rewarded by the equity market over the past three quarters. In some cases, technology stocks have proven to be an investor’s bonanza. However, it is not always smooth sailing, as the “graveyard” of companies that failed to anticipate and position themselves for change is also large. Additionally, overall growth in technology spending is cyclical and therefore prone to cutbacks during a recession. These are two facts that investors should be aware of. The technology sector – also referred to as information-technology (IT) – is often divided into two categories, namely hardware and software. This categorisation is somewhat misleading given that professional IT services and telecom equipment are the two largest segments. Hardware has been on a bumpy road in recent years, hurt by weak demand for personal computers (PCs). By contrast, software and telecom equipment have seen better growth, driven by the internet and mobile communication.

However, we are starting to observe signs of improvement in capital spending, according to macroeconomic research provider BCA Research. The capital stock related to the fast-depreciating IT equipment and software is relatively old, and the budget balances of the governments in the US and Europe are beginning to improve. While innovation will continue to make the headlines, less fiscal austerity and pent-up demand for IT suggests better prospects for the more “boring” part of technology. Is the sky the limit? At the same time, there are a number of areas within the technology sector that are thriving. Internet-savvy entrepreneurs appear to be setting up shop on a daily basis and successful startups such as WhatsApp are being bought by larger peers at a substantial premium. E-commerce continues to grow at about 15 percent per annum in the US yet accounted for no more than six percent of overall US retail sales in 2013, according to the US Department of Commerce. In the fast-growing US internet-advertising industry, overall online spending is only now surpassing 25 percent of total advertising spending. This explains the success of Amazon, Google or Facebook on Wall Street. Despite the large market capitalization of such companies, it is easy to imagine that the investors expect that these high growth rates will continue for the foreseeable future for those three firms and for that reason they will be willing to pay high multiples for this potential. A second high-growth area is mobile communication and connectivity. The world is going wireless with smartphones, the pocket-size device governing our daily lives, enabling online internet searches, social-media interaction, purchases and payments as well as the setting of the home-alarm system. According to UBS, the number of smart-

“Mobile communication and

connectivity is a high-growth area.”

“Boring” segment may see spending pickup While technology spending in the US represents close to a third of overall capital expenditures, the percentage has been stagnant since the tech bubble burst in 2000. Furthermore, capital spending measured as a percentage of gross domestic product has been in a secular decline in most large industrial nations. As a result, IT has become a more “mature” industry – one that has entered a phase of lower growth – and most technology giants such as Microsoft or IBM are trading at low valuation multiples, i.e. they have become less expensive. Generally, the more mature segment of IT has not been favoured on Wall Street. 18 Vontobel blue Macro

Go green to cope with urbanisation The ever-changing list of emerging technologies extends to numerous other fields including three-dimensional printing, “cloud” computing, or cyber security. Of particular interest is the so-called clean-technology sector, an area comprising technologies that can be used to help solve some of the contemporary environmental challenges that our society faces such as continued population growth and fast urbanisation. The push for better energy efficiency, reduced emissions and improvements in the quality of water, food and products, that are partially attributable to tightening regulations and stricter standards, have spurred the technological innovations that aim to tackle these issues. Examples of such products are semi-conductors that enable the production of energy-efficient appliances with low power consumption and zero standby (e.g. for use in refrigerators or televisions).

phones sold globally increased by an impressive 50 percent last year; however the analysts are also predicting that revenue growth for smartphones will only grow by 5 percent next year due to market saturation and pricing pressure. As a result, Wall Street has already moved Apple and Samsung into the same group as Microsoft and IBM.

1 Twitter CEO Dick Costolo waits for shares of Twitter to be traded for the first time at the New York Stock Exchange. 2 Guests of Twitter waiting too for shares of Twitter to be traded for the first time. 3 A worker gathers items for delivery at Amazon’s distribution center in Phoenix, Arizona. 4 The Google logo is spelled out in the Mojave Desert near the

California-Nevada border.

Massai in Kenya – the technological change is a global phenomena.

Competence

New technologies as a challenge – also when investing. Text: Daniel Brüesch, Head of Investment Office, Vontobel Private Banking

Success stories of innovative companies that started up in their founders’ garage and went on to become technological market leaders are certainly inspirational – also to investors. But here too, big opportunities do not come without corresponding risks, and trends are short-lived. Experience and a systematic approach are crucial for long-term success. The smartphone is probably one of the best examples of rapid technological development. However, at the same time it symbolises how powers can shift. Thanks to the smartphone, Samsung and Apple became market leaders, with the once mighty brands Nokia and BlackBerry now fighting for survival. Even for the manufacturers of navigation devices, unexpected competition arose as well. It is here, where technology sets trends in motion – or follows trends – where investors need to be vigilant and draw the right conclusions quickly. New technology – relevant, interesting or redundant? On the one hand, new technologies can give rise to entirely new industries, whilst on the other hand, for existing industries, it can give them new life – or bury them. Today, new technologies exert a stronger and faster-acting influence on economic activity. The study “Global Megatrends” published by the consulting firm KPMG demonstrates this with the changes in the S&P 500 Index©. In 1937, the average company included in this leading American index had lingered there for 75 years. By 2011, this had dropped to 15 years, and it is expected that in 2025, it will be only five years. However, even the most innovative companies among those in the index are subject to the classic product life cycles – just at a faster pace. A good example of an industry that has undergone various cycles and also experienced some surprising changes is digital photography. After a short time in the high price segment, digital cameras quickly became commoditised. It was above all the small point-andshoot cameras that sealed the fate of photographic film and with it, the demise of Kodak, once the undisputed market leader. Most people then expected that the digital camera would enjoy a long era as a product. But what happened next was that mobile phone makers began adding built-in cameras to their devices. By merging with the phone, the market for small digital cameras collapsed, and the technology shifted from that of an 20 Vontobel blue Competence

independent product to that of a supplier. Today, innovations in digital photography are being made with the single lens reflex cameras (SLRs), a niche product. At the beginning of the digital wave, these cameras were practically buried, together with classic photographic film. This example illustrates the difficulties in investing in especially new technologies. Even if you had recognised the potential of digital photography early on, the question remains: how and where should you have invested? At an early stage, direct investment in this new technology would have been lucrative. With the integration of digital cameras into mobile phones, it then became a driver of the success of phone manufacturers. Particularly in this case, it is clear that innovation can sometimes push existing products into a newly profitable boom phase. This is why, as an investor, it is vital that you not only focus on the new technology but also analyse and keep an eye on its applications. For individuals, this is a Herculean task, which is why, at Vontobel, the forecasts and analyses of the investment advisory and research teams are equally weighed in validation of the opportunities and risks in this dynamic environment. Technology trends with potential Trends are the leading indicators of fashion, which is why it is important to recognise them early. By the time everyone is talking about them, then the big opportunities are usually already past – in other words, the timely analysis of developments is essential. We would like to present a few exciting trends here. Never in the history of mankind has so much data been created and collected compared to today. Particularly on the Internet, incredible volumes of data are being produced and stored. These are a valuable resource with huge potential – if you know how to analyse and make use of them properly. Up to now, however, there has been a lack of industry-specific tools for such analysis and inno-

ÂŠ Sven Torfinn/Laif

Vontobel blue Kompetenz 21

vative structured database systems. Technological solutions will help us make profitable use of the “big data stream”. After PayPal and other providers enabled a breakthrough in new, secure Internet payment methods, it is now payments through mobile telephony that are the focus of attention. Thanks to Near Field Communication (NFC) and a special SIM card with an integrated credit card function, customers at various major retailers can already do their shopping without cash, paying for their purchases by simply holding their mobile phone up to a payment terminal with a contactless function. The payment is processed by the customer’s credit card issuer. Using the same technology, consumers can already make payments with credit and pre-paid cards at over 3,500 points of sale in Switzerland today. To some extent, though, developing countries are already one step further. In Kenya, for example, before mobile telephony was introduced, there were only 200,000 telephone lines in the entire country. Today, over 60 percent of the population own a mobile phone, corresponding to more than thirteen million users. In 2007, Kenya’s largest local mobile operator Safaricom launched the money transfer system M-Pesa, which allowed users to make secure payments to other mobile phone users via SMS. In combination with pre-paid cards, it was possible to extend this service even to the simplest mobile phones. Although most of the transfers are in the range of just a few cents, the system as a whole sees daily volume today of over 50 million Swiss francs in value. Thanks to this simplification of payments, a new middle class of small businesses has emerged. New technologies have contributed here to a local economic revolution. Paying via mobile phones has not yet attained this level of importance with us, but perhaps the Kenyan example is an indication of possible changes here. Have you ever heard of gamification? If the word makes you think of video games, you are nor far off. Gamification refers to making use of the mechanics and aesthetics of video games in productive processes. Due to the ubiquity of mobile electronic devices and the Internet, new possibilities are emerging, for example, to make monotonous or everyday work new and exciting. Employees can compete online in a virtual competition, comparing their performance individually or as a team. It is not only that direct competition can be a motivator, but also that it is possible to see an exciting virtual representation of the work that’s been done. And just like in a video game, prizes can be won, too – real or virtual. Quantity as well as quality can be taken into consideration in the evaluations. Even social challenges can be simulated in a parallel world. Here, employees at all levels have the opportunity to train for a variety of situations in order to tackle them later, in real life, better. Combining technol-

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ogy and motivational psychology, gamification is a major challenge for the investor: who will profit more, developers or users? As mentioned above, this is one of the most important and difficult questions that need to be answered. Investing in technology Success stories such as the sale of WhatsApp to Facebook for 16 billion Swiss francs, awaken the imagination of investors. Yet it is vital to keep a cool head, because in 2009 many other companies were also founded that never made it past the start-up phase. New technologies and innovations are interesting investment areas. At Vontobel, technology has been a key theme for years. Our analysts have broad knowledge and many years of experience and are now sought-after partners when it comes to questions about investments in this area. Not only has the result been excellent contacts with start-ups and established companies, but also, in cooperation with our portfolio managers, a variety of investment products in the form of funds and certificates. Today, the investor has wide access to various exciting technologies. This is the prerequisite for giving custom-tailored advice to a wide variety of investor profiles.

“Today Investors have

broad access to a wide

variety of Technologies.”

22 Vontobel blue Competence

There are different ways to invest in technology. Direct investments in start-ups are risky, but if they achieve a breakthrough they have unlimited potential. Access is difficult, however, and analysing the company or the technology requires additional expertise. Among other possibilities, there are also direct invest-

ÂŠ Vontobel

3-D printing creates fantastic new possibilities â&#x20AC;&#x201C; for example for architects.

ments in publicly traded companies. These often have above-average potential. On the opposite side are investments in companies that rely on technologies that do not prevail later â&#x20AC;&#x201C; also associated with high risks. Investors should aim to achieve broader diversification within the technology sector by means of collective investment products or structured solutions. Relevant know-how and advice is of central importance when investing in technology. In the past, thanks to our early identification of trends, we have repeatedly succeeded in making interesting trends accessible to the investor. The growing role of smart grids for the efficient use of electrical energy is a good example. Recent advances in the control and the materials used are bringing about greater security of supply for consumers, and rendering the available energy more sustainable and more economical. Thematic

areas such as 3-D printing and new forms of energy are also analysed by our specialists. Transactions such as the purchase of WhatsApp by Facebook can also be seen from a different angle. Through this acquisition, Facebook is using its expertise in the industry to prepare for the future by integrating a new application. Similarly, Google and Apple are also taking action, strengthening their innovation capacity as well as their market position. Thanks to their in-depth knowledge of this exciting environment and its rapid development opportunities, they might be able to exploit strategic advantages.

Vontobel blue Competence 23

Competence

Under the bonnet hums an innovation machine. Text: Pascal Dudle, Portfolio Manager of the Vontobel Fund – Clean Technology / Christian Roessing, Deputy Portfolio Manager Vontobel Fund – Clean Technology

Global car makers regularly fascinate the public with sleek design and spectacular visions of the future. What does not make the headlines quite so often, however, are current innovations such as the development of smaller drive units and the increasing electrification of the automobile – but these advances are highly relevant for the automotive industry. For investors, too,

it’s worth taking a look under the bonnet.

24 Vontobel blue Kompetenz

The number of visitors to the Geneva Motor Show and the success of the big car brands demonstrate that men’s – and perhaps increasingly, women’s as well – favourite toy is their “wheels”. For new models, multimedia networking and driving pleasure will certainly remain in the spotlight, but environmental considerations are becoming increasingly important, too. To put it another way: whilst the modern consumer wants to use less fuel, he doesn’t want to compromise on performance and comfort. Environmental protection is a significant topic as well, not least because of new regulatory requirements. The European Union (EU), for example, has begun fining manufacturers whose fleet exceeds carbon dioxide emission limits – which, it should be added, are being tightened regularly. With their megacities disappearing into the smog, China and many other developing countries are also adopting EU standards, albeit with a certain time delay. The United States has introduced its own standards. Smaller engines, lighter materials In order to meet stricter emission standards, manufacturers rely on specialised suppliers who have mastered the necessary technologies. Intensive research is going on in the areas of traditional drive technologies and hybrid engines that combine, for example, gasoline and electric drive. Coming as no surprise is the trend toward “downsizing”, i.e. in this case shrinking the engine whilst maintaining the original performance, since up to two thirds of the energy supplied (a full tank of petrol representing 100% of energy supplied) is lost by the engine – as friction, heat and noise. Nowadays, a modern drive unit can produce the same power with four cylinders that previously took six.

Are electric cars at the threshold of a breakthrough? The first mass-produced electric cars from Tesla and BMW have made a splash. The market potential in Europe for such vehicles is considerable, as 80% of the trips made by car here are shorter than 25 kilometres. The cost and difficulty of building the necessary recharging infrastructure has been overestimated, since the power grid is already in place and more and more shopping centres and electric utilities providers have realized that free charging stations are a good way to attract customers. However, to establish a nationwide network of “juice” that encompasses people’s homes, the cities, and the main traffic routes, there still remains a lot to do. Whether electric vehicles succeed depends not only on their acceptance by consumers but also, to a considerable extent, on the legal conditions. Measures aiming to promote electric cars range from direct subsidies on the purchase price (in the USA, for example) to free access rights for electric cars (in London) and special rights to drive in bus and taxi lanes. Focus on specialised technology companies Benefiting from the automotive industry's hunger for technology are, among others, suppliers of turbochargers and drive technologies or new battery recharging technology. As part of our fund orientated toward “clean technology”, we are interested in other attractive industries, too, of course. The world’s continuing population growth, and the increasing degree of urbanization, are both driving the increase in demand for adequate infrastructure and new technologies. In this context, standards for water quality, energy efficiency, and emissions are becoming increasingly strict – which creates an opportunity which will tend to benefit companies active in such areas as water conservation and treatment, solar and wind energy, efficient transport, and energy-saving building technologies. Concretely, this means that we are investing globally in a variety of specialised industrial and service companies with a focus on “clean” technologies.

“Smaller engines with

the same power – this is the trend.”

Other innovations related to the reduction of harmful emissions include the increased electrification of vehicles. On the one hand this means hybridisation, i.e. the conversion of braking into electrical energy, which in turn is used to accelerate. On the other hand, it has to do with the replacement of various hydraulic oil pumps by small, efficient electric motors, for example for the car’s power steering. In this context, the development of batteries is playing an increasingly important role.

The “Euro 6” standard which came into effect in January 2014 for cars and

will become effective for trucks in September 2014.

Reducing the weight of the vehicle through the greater use of carbon fibre-based materials also improves energy efficiency. Ultra-light car bodies – a technology originally developed by the McLaren racing team in the 1980s – are becoming increasingly suitable for mass production, as recent initiatives by Volkswagen, BMW and Toyota have demonstrated. Tesla opened its first production facility in Europe in the Dutch city of Tilburg, Vontobel blue Competence 25

Blue Page

News from the Vontobel Group.

Vontobel sets store worldwide in electricity from renewable sources As the first bank to do so, Vontobel has been using “GoldPower” since 2013 to underline its global commitment to generating electricity from renewable sources. Our engagement in this and other sustainability projects is outlined in the bank’s new sustainability report.

tutions and companies investing in innovative solutions to the world's environmental problems, and whose work promotes a greater understanding of the potential for investing in environment, ethical and social themes. Five at once The Structured Products team in Germany recently won first place at the German Certificate Awards in the category “Convertibles”. With this prestigious award given to the best providers and products in the German market for retail derivatives, the expert jury was honouring Vontobel’s capabilities in this competitive environment.

Vontobel received four awards at the Europe Structured Products Distributor Awards 2014, chosen by the prestigious UK trade website StructuredRetailProducts.com:

Since 2013, Vontobel has been using electricity from renewable sources, also at all out offices abroad. This was made possible thanks to “GoldPower” certificates, an innovative product from South Pole Carbon, a provider of carbon offset projects and services. This certificate offers the possibility to buy renewable electricity even at locations where the local utilities do not offer such electricity products. The proceeds from the sale of such certificates are invested in projects for the production of renewable electricity such as wind farms or solar installations. This leads explicitly to an expansion of adequate capacities and thus to climate-friendly power generation. Vontobel Fund – New Power wins “Best Clean Energy Fund” UK Award The Vontobel Fund – New Power has been named Best Clean Energy Fund at last years ESG Investment Awards. Additionally, Vontobel Asset Management was “Highly Commented” by the judging panel in the category Best Environmental Fund Management Group. The awards are organized by “Investment Week”, a UK based publication. The awards aim to recognise fund managers, insti26 Vontobel blue Blue Page

· Best in Sales, Europe · Best Distributor, Europe · Best in Sales, Switzerland · Best Distributor, Switzerland Vontobel is very pleased to be recognised for the achievements of our Structured Products Department in these national and international competitions. When you’re on the go: the Vontobel publications app With the Vontobel publications app, you have access on your iPad to the latest publications from Vontobel, anytime, anywhere. Learn more about Vontobel and read exciting contributions by selected authors from our current Portrait, from our Private Banking magazine “blue” – or find out more about the world of structured products in our customer magazine “derinews”. Download now at: www.vontobel.com/app

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