IMPACT Holdings, renowned for transforming corporate structures, effective leveraging of assets as well as revitalising deal-making and overall profitability, is now expanding its quantum portfolio.
Hedge fund manager and owner, Hanif Cawston unveiled it’s quantum portfolio, at the European Quantum Technologies Conference 2024, in Lisbon, Portugal.
Hanif said that, “ IMPACT has built a distinguished reputation that transcends conventional reliance on Fibonacci retracement levels, order flow analysis, or chasing fleeting market trends. Our forward-looking approach emphasizes investments in companies shaping the future rather than those merely dominating the present, aligning capital allocation with transformative global trends.
To reinforce our strategy, we leverage cutting-edge artificial intelligence to sift through vast datasets with precision and speed. This enables us to identify patterns, uncover opportunities, and mitigate risks that may elude traditional analysis. By integrating AI-driven insights into our process, we maintain an unparalleled edge in navigating complex markets and making data-informed decisions.
True longevity in portfolio management is achieved through disciplined capital preservation—a cornerstone of our fiduciary duty to clients. While the pursuit of alpha is critical, it must never come at the expense of sustainable growth. High-risk strategies may offer fleeting rewards, but without a foundation of preservation, even the most promising ventures risk succumbing to volatility.
Our philosophy emphasizes “time in the market” over attempts to “time the market.” By focusing on enduring themes—whether driven by sustainability, technological innovation, or evolving consumer demands—we position our portfolios to outpace inflation and secure the enduring freedom that comes from generational wealth preservation.
At IMPACT, we are not just stewards of capital; we are architects of long-term prosperity, leveraging technology and insight to build legacies that endure. “
Quantum computers are advanced computational devices that leverage the principles of quantum mechanics, a branch of physics that describes the behaviour of very small atoms and photons.
Unlike classical computers, which rely on bits (binary units of information that can be either 0 or 1), quantum computers use quantum bits, or qubits, which have unique properties that allow them to perform certain calculations far more efficiently.
Key Concepts behind quantum computers:
Qubits
- A qubit can exist in a state of 0, 1, or a combination of both, thanks to a property called superposition.
- This means a quantum computer can process many possibilities simultaneously, significantly increasing its computational power for specific tasks.
Superposition
- Superposition allows qubits to represent multiple states at once. For example, while a classical bit is restricted to being either 0 or 1 at a given time, a qubit can be 0, 1, or a mix of both, enabling parallelism in calculations.
Entanglement
- Entanglement is a phenomenon where qubits become linked such that the state of one qubit directly influences the state of another, even if they are far apart.
- This property allows quantum computers to coordinate qubits in a way that boosts computational efficiency.
Quantum Interference
- Quantum algorithms take advantage of interference to amplify correct solutions and cancel out incorrect ones, enhancing the accuracy and speed of computations.
Advantages of Quantum Computers
Quantum computers are particularly suited for problems where classical computers struggle, such as:
- Cryptography: Breaking encryption schemes based on factorisation or discrete logarithms (e.g. RSA).
- Optimisation: Solving complex optimisation problems in logistics, finance, and engineering.
- Material Science and Chemistry: Simulating molecular interactions for drug discovery and material design.
- Machine Learning: Accelerating certain types of machine learning tasks through faster optimisation.
Challenges
Quantum computing is still in its early stages due to challenges such as:
- Decoherence: Qubits are highly sensitive to their environment, leading to errors.
- Error Correction: Developing error-correction codes for qubits is a complex task.
- Scalability: Building and maintaining large-scale quantum computers is difficult.
Investing in “quantum stocks,” referring to companies involved in quantum computing or quantum technologies, requires a nuanced analysis of their potential based on the interplay of technological advancement, market readiness, and valuation metrics. Here’s a detailed mathematical and technical breakdown:
1. Growth Potential and Market Adoption
The growth trajectory of quantum technology relies on solving key technical challenges like error correction and scaling qubits. Mathematically, this can be modelled using an S-curve for technology adoption:
• Market saturation level (potential quantum market size, estimated $500B by 2035).
• Growth rate dependent on R&D efficiency and commercialisation success.
• Inflection point when quantum gains commercial traction.
Current industry projections suggest we are still in the early phase, with exponential growth possible in the mid-2030s if technical hurdles are addressed.
2. Risk-Adjusted Return Analysis
Risk in quantum stocks is modelled through the Capital Asset Pricing Model (CAPM):
- Expected return of the stock.
- Risk-free rate.
- Stock’s beta (sensitivity to market movements, potentially high for quantum
- Expected market return.
Quantum companies often have high betas (), indicating substantial volatility. The expected return must justify this risk. Using Monte Carlo simulations, one could estimate distributions based on scenarios for technical breakthroughs.
3. Revenue Projections and DCF Valuation
Future revenue streams are tied to milestones in quantum hardware and software. Discounted Cash Flow (DCF) analysis is used to estimate intrinsic value:
•Free cash flow at times .
•Weighted Average Cost of Capital.
•Forecast period.
For quantum firms, cash flows () are speculative, leading to high valuation uncertainty. Sensitivity analysis around WACC (10-20%) highlights how perceived risk impacts valuation.
4. Competitive Landscape: Nash Equilibrium in Quantum Development
The competitive dynamics among quantum firms (e.g., IBM, Google, Rigetti) can be analyzed using game theory. Firms must decide between:
1.Aggressive R&D spending (high cost, high reward).
2.Conservative investment (low cost, potential market loss).
The Nash Equilibrium occurs when no firm can unilaterally improve its position, factoring in rivals’ strategies. A payoff matrix can quantify expected outcomes, adjusting for uncertainties like intellectual property protection and government subsidies.
5. Real Options Approach
Given the uncertainty in quantum breakthroughs, real options valuation (ROV) captures the flexibility in decision-making. The Black-Scholes formula or a binomial lattice can model investment options:
- Initial investment.
- Exercise cost (e.g., scaling production).
- Time until option expiration (milestone achievement).
- Cumulative normal distributions.
ROV often shows that the value of delaying investments is high due to uncertainty.
Summary
Quantum stocks carry significant long-term potential but also substantial risks tied to technical, market, and competitive uncertainties. Investors should consider portfolio diversification and apply robust probabilistic models to assess their exposure. While quantum computing could disrupt trillion-dollar industries (e.g., cryptography, pharmaceuticals, AI), it’s speculative nature makes it suitable primarily for high-risk-tolerant investors.
For actionable insights, combining rigorous quantitative models with qualitative industry expertise is key.
Despite these challenges, IMPACT Holdings, (the parent company of CAWSTON ASSET MANAGEMENT), is very optimistic about the future of certain companies within the quantum sector.
In an interview with Hanif, at the NQCC (National Quantum Computing Centre), which is the UK’s national lab for quantum computing and works with businesses, governments and now private investors to advance research – Hanif stated: “ QMCO, INOQ, RGTI, ARQQ, QUBT, IBM, GOOG and IONQ, are worth considering in any quantum portfolio. The real-time decision making through quantum enhanced AI, will increase the ability to analyse extensive datasets faster, which will benefit autonomous vehicles, disaster response systems and derivatives traders/financial markets.
There is a lot of room for synergy such as; Quantum Neural Networks (QNNs), where AI algorithms should be designed to operate on quantum hardware. This would revolutionise fields like image processing and complex systems analysis.
I believe that quantum computing also has the power to make AI model training more energy efficient, solving one of AI’s major environmental challenges.
Arunima Sarkar, Thematic Lead for Quantum Technology at the World Economic Forum, was exactly right when she said that Quantum technology will permeate and impact every key sector of the economy and take us into a period likely to be referred to as the post-quantum era. This collectively creates an economic ecosystem, which we refer to as the quantum economy. “
