Across our portfolios, the application of our Next EconomicsTM thesis continued to work well in 2019, with each Green Alpha portfolio significantly outperforming its benchmark. What are the ideas behind Next Economics? There are two important topics.
- First, Next Economics is a macroeconomic thesis of how the economy is evolving and needs to evolve to have a chance at indefinite growth that does not destroy the ecosystems that support us.
- Second, it is a way of investing in equity markets to capitalize on this transition via forward-looking portfolio construction process that has more in common with private equity analysis than it does with traditional methods of public equity management. Leveraging this thesis, we are aligning investing with the most rapid growth areas in the global economy and thereby preserving and growing our clients’ buying power into the future. Which, of course, is the point of investing in the first place.
At Green Alpha, we translate our thesis into actual investing by intentionally setting up our portfolio construction processes to identify the right set of investment opportunities. Our processes recognize that in order to achieve a portfolio set of holdings entirely invested in what’s next, as opposed to what was, we must properly prioritize research topics. First and foremost, we need to know if a company is improving the economy – if its revenues come from lowering the overall risk profile of the global economy – and if it can function indefinitely without raising more risk than it solves.
For example, looking back at 19th and 20th century technologies like fossil fuels and internal combustion engines is no longer an interesting way to seek growth. It is rather in new means of production that are economically and functionally superior to their predecessors where one can find value looking forward. In the modern knowledge economy, much if not most value accrues to the owners of the intellectual property that defines these new means of production, so it is largely in these owners that we seek to invest. This requires thinking anew about public equity markets and requires us to carefully evaluate each prospective investment on its merits, without respect to market cap, nation of domicile, or membership in any particular index.
Traditional methods of sector allocation and blind indexing without evaluation of individual company contribution to the global economy cannot access these analyses or methods of portfolio construction. Our approach makes Green Alpha different, and we firmly believe this difference confers an ability to realize very competitive absolute performance over time.
For calendar year 2019, each of Green Alpha’s core, proprietary portfolios provided 40%+ performance growth. Please click on the portfolio snapshots for full details, including key performance drivers, benchmark comparisons, and important disclosure information.
Nothing in this post should be construed to be individualized investment advice. Please use the following webpage to find additional important disclosures: https://greenalphaadvisors.com/about-us/legal-disclaimers/