Thematic Commentary – 31 May

Education Technology and Digital Learning⁵

Generative AI had somewhat of a dualistic impact on EdTech stocks in May. On the one hand, we saw declining share prices of online learning platforms like Chegg and Pearson. Pearson plunged by 15% following concerns over the impact of OpenAI’s chatbot ChatGPT and the vulnerability of other companies to similar technological threats. The share price had been performing well recently, with quarterly group sales up 6% and positive profit growth. However, Pearson’s decline was prompted by the admission from US rival Chegg that it had experienced a significant impact on its customer growth rate due to student interest in ChatGPT. On the other hand, learning platform Udemy, up +10% over May, pointed to its increasing number of monthly purchasers. Udemy has incorporated AI into its content discovery engine which is expected to enhance the user experience and attract more learners. The platform’s strength and ability to adapt to emerging technologies make it a valuable marketplace for content creators. Generative AI has no doubt created a bifurcation in the EdTech industry, AI related threats and opportunities will continue to define the landscape and it is likely tomorrow’s winners will be those embracing the opportunities by integrating the technology into their solutions.

Introducing Circular Economy Enablers

This month we are pleased to introduce our SFDR Article 9 Rize Circular Economy Enablers UCITS ETF (‘CYCL’). This strategy seeks to invest in enabling companies that potentially stand to benefit from our transition to a more circular economy. These are companies that view the shift to a circular economy as a means of achieving truly sustainable growth by decoupling productive economic activities from the linear consumption of the Earth’s finite resources and thereby reducing pressure on our ecosystems and environment.

CYCL invests across seven Key Product Value Chains identified by the European Commission where urgent, comprehensive and coordinated action is most needed to achieve “The Transition to a Circular Economy” objective of the EU taxonomy for sustainable activities. These are aligned to the EU’s Circular Economy Action Plan. CYCL considers several business models that are driving circularity and incorporates a proprietary framework that optimizes exposure to the most impactful companies whilst also assessing financial strength.

Cybersecurity and Data Privacy⁶

Artificial intelligence is taking its first major evolutionary step in the form of Generative AI. This is already revolutionising the cybersecurity landscape, making it more efficient, lean, and ultimately boosting companies’ margins. For example, CrowdStrike has introduced Charlotte AI to its Falcon security platform. The goal is to democratise cybersecurity by allowing all users, regardless of technical expertise, to ask simple questions about network vulnerabilities and receive real-time answers. The incorporation of AI into the platform is expected to help organisations overcome the shortage of qualified cybersecurity workers. Analysts believe that CrowdStrike’s approach, combining a graph database with machine learning algorithms, positions them well to lead in this space. Another company, SentinelOne, has incorporated Generative AI features into its threat-hunting platform that includes a large-language model (LLM) natural language interface and an embedded decision-making neural network. These AI tools enable threat researchers to ask complex questions about threats, receive detailed answers within seconds, identify attacks more easily and manage enterprise security through command execution

Medical Cannabis and Life Sciences⁷

One country where the medical cannabis sector is growing rapidly is the UK, with CBD oil and other cannabis-based products gaining recognition for their therapeutic potential. The government’s decision to permit the prescription of cannabis-based medicinal products (CBMPs) under certain circumstances has marked a significant shift in public health attitudes and legislation. Rigorous research and clinical trials will continue to remain crucial to establish the efficacy and safety of medicinal cannabis in the UK. With increasing evidence and adaptable social care systems, accessible and effective CBMPs may benefit more individuals. However, achieving this potential requires a delicate equilibrium. The healthcare sector must navigate between harnessing benefits, ensuring safety, and upholding regulations and ethics. Though challenging, success could significantly improve the lives of many UK patients.

Digital Payments Economy⁸

One key barometer of payments activity is payments technology platform Paypal who reported its Q1 2023 results in May. The company saw a 9% increase in quarterly revenue, reaching $USD 7.0 billion, driven by a 10% rise in total payments volume of $354.5 billion for the quarter. The company experienced better-than-expected ecommerce activity, particularly in its unbranded checkout solutions, such as Braintree. Despite surpassing expectations, PayPal’s share price dropped by approximately 15% following the announcement. Analysts attributed this decline to a lower-than-anticipated operating margin outlook for the year, as well as concerns over tighter margins in the ecommerce segment, which was the main driver of the growth in payments activity. However, PayPal’s CEO, Dan Schulman, highlighted the higher yield of cross-border payments, indicating that they positively impact the company’s revenue although specific numbers regarding the impact of cross-border payments were not separately reported. At the end of Q1, PayPal had 433 million active accounts, a 1% year-on-year increase. PayPal expects its operating margin to expand by 100 basis points for the full year, and in Q2, it anticipates revenue growth of 6.5-7% on a spot basis.

Pet Care⁹

One emerging trend in the pet care market is the growing popularity of customization. Customers are attracted to the variety of pet care products available and many businesses now allow customers to personalize their purchases, including design, colour, size, style, and material. In order to cater to the individual requirements of customers, various features can also be incorporated, such as distinctive decorations and bedding, easy portability, personalized accessories, integrated storage compartments, holders for food and drinks, comfortable seating arrangements, different types of raw materials, and other attractive elements. This customization trend is expected to fuel the market growth of pet care products. Meanwhile, a key challenge for the pet care market is the increasing competition. The market is highly competitive, with numerous players offering a wide range of goods and services. The growth of e-commerce platforms has made it easier for new players to enter the market and compete with established brands. This intensified competition poses a challenge for businesses, as they not only compete with local retailers but also with international players with significant resources and economies of scale.