Radiant View 6 : Q1 2024

RADIANT VIEW

THE RADIANT QUARTERLY NEWSLETTER
VOLUME 6 - Q1 2024

RADIANT BUSINESS UPDATE

Business Progress

2024 for Radiant is off to an extremely busy start. We are very encouraged by the discussions we are having around the globe, which suggest a strong appreciation for our differentiated approach and signs of broadening interest in active equities and in our capabilities in particular. Radiant is closing in on three years in business and we can’t believe how quickly the time has passed. It has been extremely rewarding to engage directly with clients, consultants and prospective investors, and participate in an investment landscape that is swiftly evolving.

We are so thrilled to be progressing discussions with a number of key constituents and pursuing several potential non-US domiciled fund launches, enabling us to extend our US Small Cap and thematic ‘listed-impact’ capabilities to European investors.

While we pursue a number of exciting possibilities, we remain grateful for the broader Radiant community who continue to advise and guide us—your wisdom, insights and candor are so appreciated! We are determined to demonstrate the robustness of our investment platform and the unique firm we have built and are confident that this will be an exciting year for Radiant as we lean on the strong foundation we have established and the unique capability we bring to clients.

We are also pleased to announce that we became an official signatory to the Principles of Responsible Investing of the UNPRI and Radiant is now a Certified B Corporation, joining a global community of businesses that meet high standards of social and environmental impact.

 

Update on Investment Strategies

We are a few quarters away from our third full year of performance for our flagship US Smaller Companies strategy (link to Small Cap Growth strategy factsheet)—over the first two years and a quarter, we have navigated a variety of environments.  We are gratified by the investment results we have achieved in up and down markets, and importantly, that our investment models have performed as expected.                

We are approaching two years as sub-advisor to the HSBC Radiant US Smaller Companies Fund HSBC—RESCX (https://www.morningstar.com/funds/xnas/rescx/quote), and we are so pleased with the results we have delivered for shareholders.  While the second half of the first quarter posed challenges for our approach, the Fund continued to outpace its peers in the Morningstar Small Growth Category as well as the Morningstar US Small Broad Growth Extended Index*.

Our US Small Cap Core strategy (link to Small Cap Core strategy factsheet) has continued to deliver very strong results through the first quarter of this year, outperforming the Russell 2000 Index by 235 bps (gross of fees) in Q1.  We are hopeful that, in the coming months, we will be able to announce the launch of a non-US vehicle for the strategy to meet increased demand from distribution platforms and wealth managers across Europe. In the US, the strategy is primarily offered through an institutional commingled fund offered to US accredited investors** and qualified purchasers through a private placement limited partnership. We are currently offering early investors in the institutional fund a discounted management fee (effective 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 and fund offering documents—please contact us directly if you are interested.

Our three global equity model portfolios—Positive Trend Quality, One Life and Positive Transformation—have closed another quarter on our way to establishing an eighteen month track record. We are eagerly anticipating the launch of our thematic, ‘listed-impact’ One Life in a UK commingled vehicle in the second half of 2024.

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.

Looking forward, two areas of priority for Radiant are visualization and our continued use of large language models (LLMs) to help aid our understanding of companies. More details on each of these critical workstreams in the next Radiant View!

* Current Morningstar category is Small Growth.  The Morningstar US Small Cap Broad Growth Extended Index is designed to provide comprehensive, consistent representation of the small cap growth segment of the US equity market. Aligned with the Morningstar Style Box™, the index is underpinned by a 10-factor model that paints a holistic picture of style.  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

INVESTMENT PERSPECTIVE

Nowhere does the familiar saying, ‘the only constant is change’ ring more true than in the investment world. As capital markets participants, change and upheaval are nothing new. New stories appear every day. Our challenge is to make sense of it all, to understand how it will affect the companies we invest in, and to parse out what is truly information from what is merely noise. 

How do we evaluate new information, and ultimately incorporate it into our investment practice? We can choose to use tried-and-true frameworks, but as we have argued here and here,  an impact mindset is an important complementary lens through which we can view and, importantly, identify which companies will benefit from change.

 

The left-hand side of this ledger is a list – admittedly not comprehensive! – of ‘change’ concepts very familiar to equity investors. Our traditional frameworks, including macro models, represent the way many of us were taught to think about opportunity and risk. The right-hand side presents topics that are less familiar to investors. Are these really new concepts, or just the latest incarnation of more enduring themes?  Certainly, some are genuinely new, or at least new to our investment consciousness[1].  Importantly, these themes can be seen as signposts for future supply and demand pressures.  We believe that companies that are well positioned to address these themes will have a performance tailwind, all else equal.  Our job as investors is to find companies that will become or remain relevant – in the face of these topics– as we move through time[2].

We can and should analyze items on the right side of the ledger with our existing toolkit, but what if we could come at them in a much more direct fashion, using a lens that is complementary to both the stock-specific and macro models that have served us well for years?  The ‘impact mindset’ we advocate provides the direct route that, we argue, is largely missing from (or only indirectly reflected in) traditional investment models. At the highest, theoretical level, impact models are organized according to the pressing needs of society or the environment. While impact concepts like renewable energy, fisheries preservation, and access to medicine most definitely intersect with familiar macro or industry themes, the starting point is subtly different, adding additional dimensionality to our analysis.

We see significant upside opportunity for companies that can profitably address unmet impact needs.  Companies that can offer product solutions, in the right place at the right time, are more likely to meet with reward. For example, we see a huge future demand for heat pumps, smart crop monitoring, vaccines and communicable disease prevention, battery storage, and electrolyzers. To be fair, not all companies offering impact solutions like these will be good investments – we need to be careful to only allocate capital to those that we believe have or are poised to have fundamental strength. And we need to be very mindful of the challenge of horizon:  some solutions offered by companies won’t be commercially attractive for years, while some are greatly needed today. But the big picture takeaway is that, by organizing our analysis along impact themes we can directly uncover dozens of demand stories like these to augment our traditional analysis, which in turn, may lead to better investment performance.

 

[1] We generally very reluctant to say that something is truly new in the investment world, as Mark Twain’s observation, ‘History doesn’t repeat itself, but it often rhymes’ also seems very apropos to investing.

[2] Recall that when we talk about ‘impact’ we’re typically talking about how the products of a company meet a pressing need of society or the environment.  In this way, the study of a company’s impact is very different than ESG, which focuses largely on how a company operates, and values-led investing which is inherently non-economic in its motivation.

 

RADIANT FEATURED THOUGHTS

We were proud to have been featured in a number of media publications, speaking engagements and podcasts over the year. This quarter’s highlights:

For access to other news as well as our thought papers, please visit here

SOURCE : GOOGLE RESEARCH

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…


Google Research AI Based Flood Forecasting Models

A great example of AI being harnessed for good — we are inspired by the work done at Google Research with the use of Long Short Term Memory (LSTM) networks to predict floods.  What started as a pilot program in India has grown into an AI-based flood forecasting model in over 80 countries, many of which have experienced dramatic increase in flooding due to global climate change.  A short video explaining how they harness the enormous body of known information on flooding to predict situation-specific outcomes can be found here: https://blog.google/technology/ai/google-ai-global-flood-forecasting/ and the full article in Nature is here: Global prediction of extreme floods in ungauged watersheds | Nature


Probable Futures

We are inspired by the work of Spencer Glenden and the team at Probable Futures, a not-for-profit dedicated to climate literacy through stories and visualization.  They have some of the most thoughtful and accessible ‘explainer’ materials that we’ve seen, presented in ways that appeal to the scientist and the artist within each of us. https://probablefutures.org/


Special highlight : Daniel Kahneman

We honor the work of Daniel Kahneman, who was both an inspiration as a researcher as well as – by all accounts – just a really great human being.  His framing of economics in ‘human’ terms helped revolutionize the way we think about incentives and risk taking within investment management. Daniel Kahneman, Who Plumbed the Psychology of Economics, Dies at 90 – The New York Times (nytimes.com)

 

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.

 

Through this communication we hope to keep you apprised of key developments at our firm, share a timely thought on investment themes, 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

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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