In a recent conference call featuring Evolutionary Tree President, CIO and Portfolio Manager Thomas Ricketts, CFA and Havener Capital Partners Founder and CEO Stacy Havener, Mr. Ricketts was asked about the prolonged outperformance of innovative growth stocks and whether he believed it was sustainable. Read his response below.
“Every investor is trying to navigate an evolving economy. What does that mean? It means every industry is structurally changing. We all know about digital transformation, but every industry is becoming tech enabled. Software is being infused into products and services. Every company is digitizing its business at both different rates and to different degrees. This is causing structural change within industries and sectors and is forcing investors to sort through how innovation is creating winners and losers, which is fundamental to every investor or advisor or consultant.
We're not trying to navigate the markets. The markets are going to do whatever they're going to do in the short term. We're navigating the evolution of products, services and industries and the economy, and building this portfolio of leading innovators that are driving so much of the change that we're experiencing in our lives.
I'm sure a lot of the investors are wondering, "Gosh, we went into this COVID environment. It's helped growth investors. It's helped this innovation-focused strategy. Is that a one-time thing?," might be a question you have. First off, we didn't manage the portfolio to lean into COVID stocks – that’s not what we do. In early 2018, we launched the strategy. It was all about finding leading innovators benefiting from secular trends and evolutionary shifts that also have competitive advantages, strong balance sheets, and deep innovation pipelines.
That naturally got us to industries like e-commerce, cloud computing, software-as-a-service companies and the like. Our clients benefitted when we hit this current rough patch, which is an unusual one. Social distancing and lockdowns, obviously, caused dynamics of working and staying at home. That accelerated the adoption of many of these secular trends. But, just because you've accelerated them doesn't mean they're done. If you think in terms of the S curve and the shift to e-commerce, globally, we’re maybe in the mid-teens percentage, penetration-wise, regarding retail sales being done through e-commerce channels. So yes, that trend accelerated, but we've got many, many years of growth left on a global basis for that trend to continue. Cloud computing is the same thing. We've accelerated it, so a stepwise function jump, but still many years of growth ahead.
The other question I get is, "Well, what about the vaccine? We have a vaccine. Is there, or will there be, a rotation back to value?" I do think a vaccine will help the broader economy. We'll be able to turn back on some of the travel-related industries and other industries that got hit the hardest.
That's a good thing. I don't think that detracts from these innovative companies and their opportunities to grow. It just helps the broader economy. It reduces unemployment. That's a good environment for all industries and all different styles. Perhaps in the short term, there could be some rotation. We've already seen a little bit of that, but it feels like that's been a clearing event, meaning that news is out there. Investors absorbed that and our portfolio held up well.
Innovation is not going to stop. That might be my most important message here. We live in the age of innovation. I've been investing for 25 years, and there's just many, many years - decades - left of growth for many of these types of companies.”