The New Economy and the Return of Alpha. The ongoing debate between Passive and Active investing has been raging for quite some time. Proponents of Active investing theorize that excess returns above the broader market, or Alpha, can be achieved by taking an active hand in investment selection. Conversely, believers in Passive investing espouse the idea that equity markets are efficient and simply investing in indexes will prove to be the best approach in the long run. At TrueMark, we happen to think both sides are correct…to a point.
There are many areas of the market where passive investing makes sense. If an investor wants to gain exposure to the broad US equity market, a collection of mature and efficient industries, there are few things better to deliver this than an S&P 500 index fund. However, at TrueMark, we believe that the burgeoning New Economy has created a class of nascent economic segments that are just beginning to progress up the maturation curve. These younger economic segments are heavily characterized by inefficiencies. Where inefficiencies exist, there will most definitely be winners AND losers. These types of inefficiencies also represent a tremendous opportunity to capture significant capital appreciation. We believe that the most effective way to maximize the potential Alpha of these New Economy asset classes is through the Active management of our portfolios by credible investment experts, supported by the deep industry knowledge of our advisors.
Nascent Asset Classes Offer Opportunities. When examining New Economy segments such as Artificial Intelligence and Cannabis et al, we see rare long-term potential. In our opinion, the question facing these areas is not IF they will become large, profitable and significant portions of the economy, but WHEN. The premise of our investment philosophy begins with identifying areas of the New Economy that should significantly disrupt existing industries. That disruption has the potential to exceed market growth in revenue, profit and share price. Fundamentally, this is how we would define “nascent” asset classes. We believe that Artificial Intelligence will disrupt the existing revenue structure of the Information Technology sector and Cannabis should create a similar disruption in certain Consumer Products, particularly Alcohol and Tobacco. The sheer size of the sectors that are being disrupted means that the opportunity for players in these asset classes is momentous in the long run.
Not All Disruptive Companies Are Created Equal. An active approach to investing is particularly relevant in the asset classes of the New Economy. The companies operating in these industries are attempting to change the landscape of the economy, either by offering completely new products or by fundamentally changing the way their industries operate. When this happens, the monetary opportunity is enormous for all participants. But these industries are still in their early stages, and the possibility of tremendous gain attracts many participants. Some of these companies will succeed and some will fail. The potential winners will have the kind of experience, personnel, industry reach and relationships that increase the likelihood of their success. Other “pretenders” will not have these advantages and are less likely to succeed. When constructing and maintaining a portfolio in a New Economy asset class, expertise in the field is essential for portfolio managers to identify and avoid the ‘pretenders’ while focusing investment on those companies that are best positioned to succeed over the long term in these highly competitive spaces. TrueMark’s portfolio managers rely on lengthy investment experience, industry-specific acumen and the expertise of our Industry Advisors in actively positioning our portfolios to fully realize the long-term secular return opportunity of the New Economy.
TRUE. ACTIVE. ETF’s.
TrueMark’s Active, New Economy Investment Philosophy also forms the foundation of our Investment Process, from idea sourcing to risk management.
Idea Sourcing. The universe of potential companies is initially dictated by our focus on burgeoning, nascent asset classes. Long term investment decisions are derived by identifying disruptive industries in the New Economy and then further limiting our investment universe to a field of companies that have a secular tailwind.
Experienced Research. TrueMark pairs highly credentialed, experienced and industry-specific Portfolio Managers with deeply knowledgeable Industry Advisors. We believe this creates investment teams with the knowledge and the reach to understand what is happening in these quickly evolving industries in real-time. Through their meticulous research, we identify the underlying factors that should lead to long-term success in these highly competitive businesses. These factors are then applied to our investable universe to identify the best-in-breed companies for each facet of the industry. Finally, we use fundamental company level research to gain insight into the relative value of these high-quality names within their respective subsector, the industry itself and the market overall.
Concentrated Portfolio Construction. TrueMark portfolios are specifically designed to capture the potential alpha of a secular growth story. Relying on our research process, our goal is to choose the winners and avoid the losers in each of the industries we invest in, and in doing so, potentially deliver better long-term results to our investors. Exposure to these companies will be attained through the implementation of concentrated portfolios designed for the long term. Our goal is to buy and hold these best-of-breed names while limiting turnover to only the necessary levels. Essentially, this means entering or exiting a position, or the opportunistic increase or decrease of an existing position based on valuation. In our opinion, trading excessively in response to noise is not the best way to capture alpha. Long-term investing in companies with a competitive edge is.
Always Be Monitoring. Management team changes, reversals in competitive imbalances, the addition or subtraction of a major financial partner and systemic valuation adjustments. These are all realistic scenarios in New Economy industries. With this in mind, our teams continuously monitor our portfolio holdings, their respective industry and the broader market to ensure that we continue to own the best-of-breed. This is coupled with a tailored risk management program which incorporates sub-industry exposure, cash management, and security limits with an understanding of the volatility and risk associated with these nascent industries.
TRUE. ACTIVE. ETFs.
MANAGER & ASSET CLASS SELECTION
The Future is Now. A commonly used statement that can carry several different interpretations depending upon context. But what does it mean to the investment world? The answer is far from simple. In some segments, the “New Economy” is exploding onto the scene. Developments in Cannabis, Artificial Intelligence, and Socially Responsible Investing, to name just a few, are triggering massive paradigm shifts and disrupting traditional economic hierarchies. In others, the broader equity indices continue their relentless march toward market efficiency, passivity and fee compression.
At TrueMark, we feel that these nascent asset classes of the New Economy offer investors the most favorable environment in which to pursue capital appreciation. The combination of competitive inefficiency and eye-popping growth potential that exists in these dynamic segments makes them well-suited targets for our active, alpha-seeking investment strategies. We strongly believe that expert navigation of these landscapes is imperative, and it is this belief that represents the backbone of our manager selection process.
TrueMark will only enter an asset class in which we have identified an appropriately capable investment manager. We marry highly credentialed, experienced and industry-specific Portfolio Managers with deeply knowledgeable Industry Advisors to create a credible and effective investment team. The integrity and thoroughness of this selection process is paramount to delivering the true, targeted, actively managed exposure to the Modern Economy asset classes that our clients have come to not only expect, but also deserve.