The future is here.

This is what we do, because this is who we are.

 

HOW WE DO WHAT WE DO

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What is Initiative’s mission?

Our mission is to deliver long-term capital appreciation with low correlation to traditional investment strategies by identifying and investing in the leaders, enablers and beneficiaries of value-driven companies.

What is the idea behind INITIATIVE’s Open Research Infrastructure?

Initiative’s Open Research Infrastructure seeks to capitalize on rapid change through an open approach and the convergence of insights. Initiative believes that a combination of top-down and bottom-up research allows us to size the investment opportunity of disruptive innovation, and then detect and evaluate companies best positioned to benefit. To gain a deeper understanding of quickly changing themes, Initiative employs an open research strategy to gather information, both helping to define and refine its internal research process. Inputs include Theme Developers, who are thought leaders in their fields, social media interactions, and crowd-sourced insights as people respond to Initiative’s public research. By applying technological concepts and external inputs to traditional approaches, Initiative seeks to create a more transparent, creative, and interdisciplinary investment process.

Why does INITIATIVE invest in all market capitalizations?

INITIATIVE believes that disruptive innovation cannot be constrained by market capitalization, geographic boundaries, or sectors. We research and invest in a wide range of companies, from mega caps to micro caps that we believe are going to contribute to and benefit from the rapidly changing market landscape. Small cap companies may offer a higher growth opportunity, whereas large cap companies may offer less volatility.

How does INITIATIVE view volatility?

Understandably, during the past 15 years of financial volatility, investors may have gravitated to a disproportionate weighting in risk-averse strategies, including cash, bonds, and high dividend yielding stocks. It seems investors might have associated change more with crisis and risk than with innovation and opportunity. INITIATIVE believes that the path to creating a well-balanced portfolio is by combining both higher and lower risk investments. In fast-moving themes, like those of our strategies, volatility is the foundation of opportunity and potentially higher returns. For that reason, INITIATIVE focuses on promising areas of disruptive innovation centered around artificial intelligence, robotics, energy innovation, DNA sequencing, aerospace, interplanetary networks, cryonics etc.

Under what circumstances does INITIATIVE expect to underperform?

INITIATIVE’s strategies normally underperforms in “risk off” markets. This happens, in part, because other investors and advisers tend to return to benchmark names at such times, which INITIATIVE generally does not. INITIATIVE believes that at such times, the fundamentals for the companies held in its portfolios look better. As businesses in tough times seek to make changes and become more efficient, INITIATIVE believes that the companies held in the INITIATIVE portfolios are ultimately more in demand.

What is the suggested time frame of investment?

INITIATIVE suggests a long-term investment horizon of a full investment cycle, or 7+ years. INITIATIVE aims for benchmark agnostic long-term growth of capital, by focusing on INITIATIVE’s belief that innovation is key to growth. INITIATIVE believes it will outperform broad-based benchmarks over the course of a full-market cycle, with low correlations of relative returns to traditional growth strategies, and negative correlations of relative returns to traditional value strategies.

Why does disruptive innovation matter?

Technology is disrupting our world at an accelerated rate. Multiple innovation platforms are enabling industrial growth and facilitating convergence across multiple sectors of the economy and industries. The full magnitude of these innovations and the investment opportunities they create are often unrecognized or misunderstood by traditional investors. More importantly, disruptive innovation impacts and concerns all our lives and changes the way the world works for the better, from communication and transportation, to education and healthcare.

What sets Initiative apart?

A research team rooted in over 40 years of experience in identifying and investing solely in disruptive innovations that should change the way the world works and deliver long-term growth as industries transform. Despite its potential, Initiative believes the full magnitude of disruptive innovation and the investment opportunities it creates are often unrecognized or misunderstood by traditional investors. Initiative researches across sectors, industries, and markets to gain a deeper understanding of the convergence and market potential of disruptive innovations. Initiative believes that its consistent investment process and active management of high-conviction portfolios capitalizes on rapid change and avoids industries and companies likely to be displaced by innovation.

What are the benefits of thematic investing?

Thematic investing can offer a low correlation of relative returns to traditional growth strategies and negative correlation of relative returns to traditional value strategies, offering diversification for investors. While benchmarks reflect past successes, thematic investing seeks to capture future growth allowing investors to earn a market premium. A constant focus on secular changes and disruptive innovation can offer a portfolio hedge in a rapidly changing world and complement traditional index-based strategies.

What does “cross-sector” mean?

INITIATIVE’s cross-sector portfolios aim to uncover disruptive innovation that impacts multiple industries. Unlike traditional investment strategies that specialize in certain narrowly focused sectors of the economy, INITIATIVE uses a theme-based approach unconstrained by economic sectors.

What is INITIATIVE’s sell discipline?

INITIATIVE will trim or add to positions to (i) take advantage of opportunities created by short-term negative market actions or market sentiment; (ii) provide liquidity to invest in companies in which INITIATIVE has relatively more confidence; or (iii) fund names that INITIATIVE believes offer relatively more market opportunity relative to current price. INITIATIVE uses its own scoring system to value companies and monitor the underlying investment thesis. Any score downgraded to 6 or lower (on a score from 1-10) triggers full stock review. INITIATIVE will sell a company if it believes that a disruptor has become disrupted itself, or that it is no longer on the leading edge of fast-moving industries or innovation.

What benchmarks are used by INITIATIVE?

INITIATIVE manages its strategies in a benchmark agnostic manner. Despite this, INITIATIVE often illustrates the performance of its portfolios relative to broad market indices, including the S&P 500 Index, Russell 3000 Growth Index, and the MSCI World Index. While most of the names in INITIATIVE’s portfolio are either not part of broad-based indices or represent very small weights, INITIATIVE believes the companies it invests in are prominent in such indices over a full market cycle.

What is the typical portfolio turnover of INITIATIVE’S strategies?

The typical annual name turnover in INITIATIVE’s representative Disruptive Innovation Strategy portfolio is around 15%. If a stock’s thesis is unchanged, INITIATIVE tends to trade around the periphery. If a stock’s share price has fallen in the market due to short-term controversy, INITIATIVE tends to increase its position (providing the thesis is unchanged). If a stock is overhyped, INITIATIVE will trim the position to take profits. Trading in both profitable and unprofitable investments that do not have thesis changes is generally for the purposes of reallocating into names with higher upside to the valuation target, from names that we believe have diminished upside. Individual share turnover numbers are higher as a result, approximately 70% historically. (Timeframe: Five years. Turnover may vary due to active portfolio management.)

What sectors do you believe will be disrupted in the next five years?

Not only will innovation stimulate substantial growth and create new markets, we believe it also will disrupt sectors which historically have stoked high inflation. We believe that global oil demand is likely to peak within the next few years as electric vehicles begin to scale and as autonomous electric taxi networks account for an increasing share of miles traveled. DNA sequencing will introduce science to health care decision-making in a way never before possible, minimizing the guess work and eliminating waste. At the same time, robots will serve not only as an antidote to labor shortages that are cropping up in the US, Japan, China, and elsewhere, but also should increase productivity, one of the most powerful forces against inflation.

What is a Theme Developer?

Theme Developers are thought leaders from a variety of fields who offer meaningful insights, experience, and subject matter knowledge in one of INITIATIVE’s research themes. INITIATIVE actively engages with Theme Developers as part of our research ecosystem. If you have subject matter expertise and are interested in becoming a Theme Developer for one of our research themes, please contact INITIATIVE. INITIATIVE Theme Developers are not employees of INITIATIVE and do not receive compensation from INITIATIVE.

What is Thematic Investing?

INITIATIVE utilizes thematic investing to capture disruptive innovation. Thematic investing seeks to capitalize on long-term trends that cut across economic sectors and geographic boundaries. INITIATIVE believes thematic strategies can better adjust for rapid change and incorporate a deep understanding of the underlying drivers of long-term value creation and risk. INITIATIVE researches across sectors, industries, and markets to gain a deeper understanding of the convergence and market potential of disruptive innovations, and thus size the investment opportunities more appropriately.

INITIATIVE’s thematic analysts ask the questions:
– Where is the next big disruptive innovation?
– What is the size of the total market?
– Which industries will be disrupted?
– Which companies will emerge as the winners?

What is INITIATIVE’s Investment process?

INITIATIVE’s investment process initially examines from the top-down how the world is changing and where it is headed. INITIATIVE employs an open research strategy to gather information, both helping to define and refine its internal research process. Inputs include theme developers who are thought leaders in their fields, social media interactions, and crowd-sourced insights as people respond to INITIATIVE’s public research. Using this information in an iterative fashion, INITIATIVE’s analysts work with the Director of Research and CIO to “size” and “re-size” the opportunities. As a result of extensive and iterative research steps, INITIATIVE anticipates and quantifies multi-year value-chain transformations and market opportunities. Through this process, specific companies percolate to the top as best positioned to benefit from the identified investment premise, at which point INITIATIVE begins its bottom-up process. INITIATIVE scores potential investments based on key metrics, inputting the values into a proprietary scoring system to quantify the companies in the context of the opportunity.

Under what circumstances does INITIATIVE expect to outperform?

During “risk-on” markets, INITIATIVE’s strategies should outperform. Investors come to recognize the misunderstood nature of many companies’ fundamentals and look to identify companies that are leaders rather than the largest market capitalization company in a passive index. Volatility can be positive on the up-side. The issuers INITIATIVE invests in generally do not comprise significant portions of broad-based indices.

What is disruptive innovation?

INITIATIVE defines disruptive innovation as the introduction of a technologically enabled product or service that changes an industry by creating simplicity and accessibility while driving down costs. Innovation enables industry growth, facilitates convergence across different sectors of the economy, and drives long-term investment opportunities. Over time, innovation should displace industry incumbents, increase efficiencies, and gain majority market share. For that reason, INITIATIVE focuses on innovations centered around artificial intelligence, robotics, energy storage, DNA sequencing, and blockchain technology, all of which we believe are converging to change the way the world works.

What are the innovations evolving today?

We believe that artificial intelligence, DNA sequencing, robotics, energy storage, and blockchain technology are the innovation platforms leading the global economy into what could be the most transformative period in history. We believe that historians will look back on this era as one of unprecedented technological foment. They will see critical inflections in artificial intelligence and DNA sequencing and editing; they will recognize this as the 10 year stretch when robotics proliferation became inevitable and when the battery became the fundamental unit of energy delivery; and they will identify in blockchain and cryptocurrencies the roots of the structure that would grow to upturn the entire business and financial landscape. We believe these technologies will transform the way the world works, upending incumbent providers and creating fortunes as new businesses propel the global economy forward.