The value of investment research: Uncovering disruptive growth themes

  • Investment management
  • 5 minute read

By Robert Alster, Head of Research

In today’s economy, many businesses compete on a global basis, earning revenues across multiple continents. Businesses are influenced not just by domestic, but by global trends, and investment teams need to have a deep understanding of industry threats and drivers to seek out the best companies.

Here are a few areas where our in-house research team has identified potential for growth:

Technology

We believe this is an outdated sector label. Today, technology is an intrinsic part of every sector and an incredibly disruptive, global force.

As the pace of change continues to accelerate, businesses can be ‘disrupted’ – innovative new competitors could enter the market with lower priced products, better business models, or even a completely new approach. This can turn market leadership upside down, so we choose to focus on management teams that continue to invest in innovation.

Our priority is to avoid the losers as much as find the winners, looking for firms with both secular tailwinds (sizeable market, low penetration, sustainable technological advantage and potential for disrupting existing business models) and financial soundness (generating cash flow, recurring revenue models, low discrepancy between adjusted and generally accepted accounting (GAAP) standard accounts and reliable management teams).

Personalised medicine

The world is moving away from a ‘one-size-fits-all’ approach to healthcare, as genetic analysis allows doctors to better understand each patient. As such, we are looking at companies investing in biomarkers to develop personalised medicine (biomarkers are biological molecules found in body fluids or tissues that can be coded for by a particular gene). Considering ageing demographics and constrained government budgets, these types of solutions will benefit society by improving treatment decisions, as well as the efficiency of healthcare spending overall.

Autonomous and electric vehicles

In the decade after 2025, the autonomous vehicle market is estimated to be worth US$77 billion; with 18 million unit sales by 2035(1). Here are some key reasons why we see potential in this space:

Safety: in 2016, nearly 1.3 million people died worldwide due to vehicle crashes. Further to this, 94% of accidents in the US involve human choice or error (2).

Congestion: in the US, traffic congestion results in 5.5 billion extra hours of unnecessary travel time with an estimated US$121 billion in lost time and extra fuel costs (3).

Liability: insurance premiums will reduce as safety increases, but where will the liability fall?

Given this trend, should car manufacturers be considered the best investment opportunities? We are keeping an eye on companies designing and producing semi-conductors, batteries, and other sustainable component parts used in electric vehicles.

 

The value of research

At its most basic, investment research comprises of data on company websites, in annual reports and accounts and the transcripts of management calls. Taking this even further, it can include regular visits with management and understanding the industry as a whole – this may involve meeting sector experts, attending conferences, or diving into government websites and complex databases.

In a world of information overload, establishing institutional-quality research is a vast undertaking, which is why we established a dedicated, in-house research team here at Close Brothers Asset Management. This team is designed to help our investment managers cut through the noise, and use the most relevant and insightful data to uncover tomorrow’s opportunities. Further to this, we have made a significant investment in research, enabling us to screen over 12,000 companies, down to a Core List of approximately 350 stocks which pass our proprietary screens and analysts’ expert judgement.

Where topics are incredibly niche, we engage with external, expert networks which help to provide our researchers with an even deeper understanding of a business’ process before selecting it for our Core List.

As the world becomes increasingly global and complex, it is essential that investment managers understand not only current economic conditions, but also what makes a sustainable investment now and in the future. Having this robust research capability enables our team to quickly uncover what we believe are the best investment opportunities of tomorrow.

The value of investments will go up and down and clients may get back less money than they invested. Past performance is not a reliable indicator of future returns. The information contained in this document is believed to be correct but cannot be guaranteed. Opinions constitute our judgment as at the date shown and are subject to change without notice. This document is not intended as an offer or solicitation to buy or sell securities, nor does it constitute a personal recommendation.

 

(1) Lewis M. Clements, Kara M. Kockelma: Economic effects of automated vehicles
(2) https://waymo.com/mission/
(3) The Atlantic: The American Commuter Spends 38 Hours a Year Stuck in Traffic, published 06/02/2013.

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