Radiant View 5 : Q4 2023

RADIANT VIEW

THE RADIANT QUARTERLY NEWSLETTER
VOLUME 5 - Q4 2023

Through this communication we hope to keep you apprised of key developments at our firm, share a timely thought on an ESG or impact-related theme, and highlight inspirations that remind us that good things are going on in the world.

As a newer business, we are deeply grateful for all those who have given us an audience, supported us in organizing meetings and went out of their way to hear our story—whether virtually or in person.  We welcome the opportunity for continued engagement and open dialogue, including feedback on the content of our newsletter.

Thank you again for your support and encouragement.

Best,
Heidi & Kathryn, co-founders

RADIANT BUSINESS UPDATE

Radiant has officially been in business two and a half years and we are delighted to have completed our second full year of performance for our flagship US Smaller Companies strategy (link to Small Cap Growth factsheet). At the end of 2023, we marked eighteen months as sub-advisor to the HSBC Radiant US Smaller Companies Fund HSBC Radiant US Smaller Companies Fund—RESCX ( https://www.morningstar.com/funds/xnas/rescx/quote ). The Fund now ranks in the top decile in performance relative to its Morningstar Category, and was awarded 4 stars and 5 globes.*

We have been managing our US Small Cap Core strategy (link to Small Cap Core factsheet) for fifteen months. The strategy is primarily offered to US accredited investors** through an institutional commingled fund. We are currently offering early investors in the institutional fund a discounted management fee (in perpetuity) for a limited time. We’re hoping that a combination of our performance track record and a significant financial incentive will demonstrate the confidence we have in our approach and might motivate a subset of clients to be early investors in our boutique. We would be pleased to share the details—please contact us directly if you are interested.

A final milestone as we closed the door on 2023, was reaching a one year track record with our three global equity model portfolios. Positive Trend Quality is a global broad market complement to US Smaller Companies, while the other two portfolios are listed impact strategies, investing in companies aligned to specific themes within the UN Sustainable Development Goals;  

  • One Life—focuses on the interconnectedness of all living things, leveraging the concept of ‘one health’ as promoted by the WHO***, in an integrated, unifying approach that aims to sustainably balance and optimize the health of people, animals and ecosystems. The strategy is broadly diversified across multiple sectors.
  • Positive Transformation—targets investment in companies that represent the technological ‘engine’ of the world economy, recognizing that transforming the ‘engine’ must be our focus if we expect to meet the challenges and opportunities associated with a future that will look very different than the past.

Across the board, we are encouraged by the strong investment results we have delivered in different market environments—both absolute and relative—demonstrating not only the resilience of our approach, but also that the way we integrate environmental, social and governance considerations is accretive to risk-adjusted return.

We are also thrilled to have welcome our first institutional client into our institutional commingled fund. We are honored by the trust in us that their investment conveys.

Crossing these important milestones, we are especially grateful for the broader Radiant community who continue to advise and guide us—your wisdom, insights and candor are so appreciated!  We continue to try to break through traditional hurdles and are confident that 2024 will be an exciting year for Radiant as we seek to build on the strong foundation we have established and the unique capability we bring to clients.

We look forward with anticipation to the bright future ahead of us.

 

*Current Morningstar category is Small Growth.  The Morningstar Star rating is a measure of a fund’s risk-adjusted return, relative to similar funds. Funds are rated from one to five stars, with the best performers receiving five stars and the worst performers receiving as single star.  Risk-adjusted return is calculated by subtracting a risk penalty from each fund total return, after accounting for all loads, sales charges, and redemption fees. The risk penalty is determined by the amount of variation in the fund’s monthly return, with emphasis on downward variation. The greater the variation, the larger the penalty. Funds are ranked within their categories and stars are assigned as follows: Top 10%: 5 stars, Next 22.5%: 4 stars, Middle 35%: 3 stars, Next 22.5%: 2 stars, Bottom 10%: 1 star, The Morningstar Globe rating helps investors measure portfolio-level risk from environmental, social, and governance, or ESG, factors.  Ratings from Morningstar partner Sustainalytics that measure a company’s material ESG risk are rolled up on an asset-weighted basis to get a portfolio score. A fund with high ESG risk relative to its Morningstar Global Category would receive 1 globe.  A fund with low ESG risk would receive 5 globes.

**Accredited Investor – https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins/updated-3

***One Health Tripartite (WHO, FAO, OIE) plus UNEP working definition, November 2021

ESG PERSPECTIVE

Rethinking ‘Energy’ Investment

Energy fuels our daily lives in the form of electricity for our appliances, heat for our homes, and power for our transportation; and it underpins nearly all forms of industrial and commercial productivity. Public equity investing in energy has historically been entirely focused on fossil fuels – done through oil and gas companies, pipelines, and energy infrastructure service providers, with the expectation that as underlying commodity prices rose, so too would share price. This was a way for equity investors to directly tap into the driver of our economy’s growth. But ‘energy’ is changing, and we believe it is time for investors to cast a wider net to find future opportunity. Until recently, the fact that ‘energy’ was largely synonymous with ‘fossil fuels’ resulted in the lockstep relationship between Gross Domestic Product (GDP) growth and greenhouse gas (GHG) emissions:

Source: CO₂ emissions per capita vs. GDP per capita, 2018 (ourworldindata.org) Note: GDP per capita is expressed in ‘international-$’ (a measure that holds purchasing power constant across geographies) at 2011 prices.

But this relationship has started to change in recent years, as many economies take steps toward decoupling economic growth from emissions.  While the 1990s saw both emissions and GDP growth expand rapidly in the US, the year-over-year change in emissions began to fall in 2005, and then actually start to contract in 2009[1].

[1] Consumption-based CO2 is the more complete view of CO2 emissions as it adjusts for goods that are imported or exported.  Put differently, the decrease in CO2 emissions depicted by the red line was a function of decreased overall energy use and/or substitution of some fossil fuels with lower carbon energy sources, as opposed to ‘exporting’ our emissions to other countries like China.

Source: https://ourworldindata.org/co2-gdp-decoupling Hannah Ritchie (2021) - “Many countries have decoupled economic growth from CO2 emissions, even if we take offshored production into account”

A key driver of this outcome – the continued upward trend in GDP paired with the flattening and eventual downturn in GHG emissions – is the type of energy sources that underlie the components of GDP growth.  As the US (and most other economies) incorporates a greater proportion of renewables into its energy mix we should not only expect to see this relationship further unwind, but the emergence of a new breed of companies benefitting from the change.

This means that from an investment perspective, we would be wise to rethink what it means to invest in energy, or to have energy exposure in our portfolios.  In the presence of new types of energy, and the breaking of the bond between fossil fuels and GDP growth, we should step back and ask ourselves:  what kinds of companies will benefit from the energy trends of tomorrow?  Which firms are poised to be new energy providers, and what types of products will be needed up and down the supply chain?  We should also look for new types of companies – those that will be necessary to remodel our energy infrastructure.  They will help form new connective tissue within the economy that may only loosely intersect with traditional fossil fuel pathways.

While many of the energy names of the future are categorized as renewable energy equipment providers or energy developers, some of the biggest players come from industries like semiconductors, software, IT services, electric components, communications equipment, and even commercial vehicles.

Our ability to look beyond the traditional ‘Energy’ label for investment opportunity is only going to be more important with the passing of time as the Energy Information Administration (EIA) expects renewable deployment to grow by 17% in 2024 to account for a fourth of electricity generation in the US[2].  And globally, the International Energy Agency (IEA) predicts that by 2028 renewable energy sources will account for over 42% of global electricity generation, with the share of wind and solar PV doubling to 25%[3].

The world’s definition of ‘Energy’ is changing.  Isn’t it time we evolve our investment definition? 

We believe that broadening our field of view to accommodate the new energy players – especially those from unexpected industries – will help us uncover the winners of tomorrow.

 

[1] Consumption-based CO2 is the more complete view of CO2 emissions as it adjusts for goods that are imported or exported.  Put differently, the decrease in CO2 emissions depicted by the red line was a function of decreased overall energy use and/or substitution of some fossil fuels with lower carbon energy sources, as opposed to ‘exporting’ our emissions to other countries like China.

[2] Short-Term Energy Outlook – U.S. Energy Information Administration (EIA)

[3] Executive summary – Renewables 2023 – Analysis – IEA

RADIANT INSPIRATION

We find inspiration all around us – people and organizations doing work that is deeply meaningful and deeply necessary. These are two examples that we hope you find inspiring, too:

 

In Honor of Yacouba Sawadogo (1946 – December 2023)

We honor the passing of Yacouba Sawadogo, a Burkinabé farmer who used traditional techniques to reverse ‘desertification’ and restore soil quality.  He was the recipient of several international awards during his lifetime and serves as a reminder of the importance of individual actions in the fight to save the planet.

Yacouba Sawadogo’s journey and contributions were portrayed in the 2010 movie “The Man Who Stopped The Desert”.  It is the incredible story of his battle with nature and man.

“In Burkina Faso, the desertification of once fertile plains caused droughts and ruined harvests, sparking a mass exodus and famines. Yet one illiterate peasant farmer and his ingenious farming methods have proved the key to achieving what experts have failed to do: stop the desert.  This is the unique story of Yacouba Sawadogo, whose years of toil have transformed the lives of thousands.”—IMDB

 

Overlooked (No More)

An initiative spearheaded by the New York Times’ obituaries desk digital editor, Amisha Padnani, and Jessica Bennett, the paper’s gender editor, ‘Overlooked (No More)’ is now a recurring feature in the Times that honors ‘remarkable people’ whose deaths were overlooked at the time of their passing.

We have found considerable inspiration reading the stories of amazing people like Diane Arbus, Sylvia Plath, and Ada Lovelace – all of whom were ‘overlooked’ by the paper despite their enormously significant contributions to society.

 

We warmly welcome any inspirations or initiatives you might come across that would be worthy of sharing with our broader community. Please feel free to email us your thoughts.

 

Disclaimer

This newsletter is being furnished to you on a confidential basis. Any reproduction or distribution of this newsletter or accompanying materials, if any, in whole or in part, or the divulgence of any of its contents without the consent of Radiant Global Investors, (“Radiant”) is strictly prohibited. The information contained herein does not constitute an offer to sell or the solicitation of an offer to purchase any security or investment product managed or advised by Radiant. Any such offer or solicitation for an interest in any product may only be made by means of delivery of an approved offering memorandum or prospectus (“Offering Document”). The information in this presentation is qualified in its entirety, and subject to, the information contained in the relevant Offering Document.  Radiant is an SEC Registered Investment Advisor offering investment management portfolios for both Institutional and Retail investors. For more information, please visit https://adviserinfo.sec.gov/firm/summary/316920

All supporting factsheets and performance results supplementally presented within the links above should be reviewed independently with an understanding of the specific disclaimers included on these supporting documents. Past performance is not indicative of future results.    

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