The economic or technical change must be big enough to influence the bottom line of companies in multiple industries. We intentionally look for secular themes and disruptive changes that span multiple industries, as this is where the market can miss opportunity. Our analysts are organized by theme and think about themes holistically and cover all related stocks.
The secular change should create meaningful profits that industry leaders can defend over time. Our focus on the impact to corporate performance is designed to distinguish between a trend and a potentially profitable investment theme. There are many profound changes occurring around the world, but most are trends that may not qualify as investment themes. Defensible and sustainable competitive advantages must exist.
The potential theme must be investable. There must be enough publicly traded stocks with sufficient liquidity that we can invest at least 5% of our portfolio in the theme. We seek scenarios where the market will begin to discount the profitability of the change or disruption within a three-to-five-year time horizon.
Proper diversification and risk management require multi-theme portfolios. A single-theme focused strategy either would not achieve appropriate diversification or would end up holding companies tangentially related to the theme, which brings unintended risk and dilution of the research process. We integrate five to seven uncorrelated, multi-sector themes into a multi-theme portfolio.
