Special Comment: Technology Investment – Finding the Modern Sunstone

"He who owns the means of navigation owns the trade routes." This ancient wisdom powered the Viking expansion across the Northern hemisphere over a thousand years ago. While other seafarers hugged coastlines, Vikings ventured confidently into open seas using a remarkable technology—the "sunstone."

This translucent calcite crystal allowed Vikings to determine the sun's position even on cloudy days, effectively creating the world's first polarized light navigation system. Long dismissed as myth, modern research has confirmed this technology's effectiveness.

In this special comment, we explore technology’s role as a growth driver, the Nordic countries’ technology leadership in Europe, and how an active engagement strategy can be advantageous in the technology sector.

Technology: The Economy's Growth Engine

Just as the sunstone exponentially increased Viking productivity by enabling all-weather navigation, technology is the primary driver of productivity growth across the global economy. This productivity advantage explains why the technology sector consistently outgrows other sectors.

According to the OECD, even during the relative lull (2013-2023) between the smartphone super cycle and the current AI investment boom, the ICT sector delivered growth approximately three times that of the broader economy, maintaining an average annual growth rate exceeding 6%.

The McKinsey Global Institute research shows that technology-intensive sectors have seen productivity growth 2-3x higher than low-digitization sectors. Higher productivity drives margin expansion and helps sustain the quality advantage of technology-intensive companies.

Looking forward, AI investments will likely boost productivity and growth across industries. The technology sector should capture a disproportionate share of this expansion.

We believe investing in this quality growth cycle can be particularly attractive.

Technology: The Economy's Growth Engine

We are optimistic about Europe's current efforts to establish greater technological sovereignty. If the recommendations in the Draghi report are implemented, combined with the anticipated investment boom in defense, Europe could reclaim its position as a leader in the global economy. We believe the digitally advanced Nordic countries are well positioned to play an important role in this effort.

Across our core holdings, we observe companies benefiting from a strong foundation in the digitally sophisticated Nordic markets. These enterprises develop robust products in response to demanding local customers, then export these tried and tested solutions to less digitally developed markets in Europe and further afield. Their home markets in the Nordics continue to serve as cornerstones for product development and innovation, while international expansion provides a long runway for growth.

To paraphrase Frank Sinatra: “if you can make it here [in  the Nordics], you gonna make it anywhere”

Examples include Lime Technologies, the Nordic CRM leader. It is now successfully exporting its best-in-class software to the Netherlands and Germany, replacing old legacy systems.

Storytel, the online audiobook champion, has expanded from its Nordic stronghold to take leadership positions elsewhere in continental Europe. Online audiobook penetration is 4-5x higher in the Nordics than other European markets, leaving ample room for growth.

This "Nordic advantage" creates a unique opportunity for investors: companies tested in some of the world's most digitally sophisticated markets, yet still valued as regional players despite their international growth potential.

The Nordic countries consistently rank among Europe's digital economy leaders, while maintaining close proximity and access to promising growth markets further south in Europe.

Unlike the USA, there are few listed technology large caps in the Nordics. To gain diversified exposure to the technology sector, it is necessary to consider small and mid cap stocks. In this sector and segment, specialist funds may have an advantage, as we shall see next.

The Advantages of Technology Sector Specialisation

In the stock markets, the technology sector has demonstrated clear global outperformance in the past 15 years. It is more difficult, though, to identify genuine outperformance among technology sector funds compared to both relevant indices and generalist funds.

In the private equity markets, however, some studies indicate that sector specialists outperform over time. These specialist funds, both within venture capital and private equity, actively engage with their portfolio companies to drive value creation.

At Anchora Capital, we seek to actively engage with our portfolio companies to enhance value creation. We find it is easier to engage with portfolio companies where we, and our network, have a deep sector expertise.

The Anchora Approach to Technology Investment

Like the Vikings who mastered the sunstone, successful technology investors must look beyond what is immediately visible. While a technology focus helps position investors to benefit from structural growth, thorough company analysis may be necessary to identify sustainable quality companies.

Research done by Assnes et. al. suggest quality-focused approach drives excess returns over extended investment horizons. To further enhance the returns of technology investing, investors may also benefit from actively engaging with their portfolio companies.

At Anchora Capital, we do a deep dive assessment to identify high quality technology companies before actively engaging with them to enhance value creation. We seek the modern equivalent of the Viking sunstone — technologies that illuminate paths to new opportunities even when others cannot see them.