RADIANT VIEW
THE RADIANT QUARTERLY NEWSLETTER
VOLUME 8 - Q3 2024
RADIANT BUSINESS UPDATE
Business Progress
With another quarter under our belts, we are excited to approach the three-year track record for our flagship US Small Cap Growth strategy—a critically important milestone for our boutique firm. We remain as committed as ever to the long-term success of our entrepreneurial mission and are deeply grateful to those who have supported us along the way.
We continue to be encouraged by the discussions we are having around the globe, which suggest not only a strong appreciation for our differentiated approach, but also signs of broadening interest in active equities and in our capabilities in particular—and are eagerly anticipating the launch of non-US domiciled funds, enabling us to extend our US Small Cap and global thematic ‘listed-impact’ capabilities to European investors.
As previously noted, we also recently revamped our website: https://radiantinvestors.com and warmly welcome your feedback and suggestions.
Update on Investment Strategies
2024 has kept us on our toes between heightened business activity and navigating an investment landscape that is swiftly evolving—and Q3 was no different. We are encouraged that our investment approach is viewed as unique and value-added and that demand for small cap equities appears to be increasing worldwide.
As noted, our flagship US Smaller Companies strategy (link to Small Cap Growth strategy factsheet) will shortly cross the three-year track record milestone. We have now been managing the HSBC Radiant US Smaller Companies Fund—RESCX (link: https://www.morningstar.com/funds/xnas/rescx/quote) for more than two years and are pleased with the results we have delivered for shareholders. We are especially delighted to see our efforts translating into consistent positive inflows into the Fund.
Our US Small Cap Core strategy (link to Small Cap Core strategy factsheet) also marked two years at the end of the quarter. We are targeting the launch of an Irish-domiciled vehicle for the strategy to meet increased demand from distribution platforms and wealth managers across Europe.
In terms of our global equity capability, we are pleased with the results our Positive Trend Quality model portfolio has delivered since inception, especially considering the strategy has held minimal exposure to the Mag 7, which challenged performance in the first half of the year.
Our benchmark-agnostic, global equity model portfolios—One Life and Positive Transformation—approach a two-year track record at the end of 2024. We have conviction in the long-term opportunity for investing in public equities with an impact orientation and are eagerly anticipating the launch of our thematic One Life strategy in a UK-domiciled vehicle in early 2025.
INVESTMENT PERSPECTIVE
A Nuanced View on Investing in Loss Making Companies
Those familiar with Radiant’s investment process would recognize our stated desire to invest in companies that are experiencing strong ‘economic traction’. This is especially important when investing in small cap stocks as it is very easy to be dazzled by stories of technology or medical advancements in this part of the market. Smaller companies are exciting because this is where innovation lives, and this is where some companies that will ultimately be big players in the market get their start. Overlooking real ‘economic traction’ in favor of pie-in-the-sky stories only works in the rarest of occasions. We believe it is better to identify companies that have compelling fundamentals (e.g. earnings quality measures of profitability, gross margin, and asset growth), evidencing a company’s ability to take amazing ‘stories’ and turn them into profitable businesses.
A central challenge in the US smaller company space is the fact that, at any point in time, loss-making companies make up a significant portion of the market. These are companies with negative trailing 12-month earnings. As a group, loss makers are deeply unattractive – their returns are meaningfully worse than their peers, they are much more volatile, more often shorted, and have inferior earnings yields and profitability. Given this unappealing profile, why not simply throw away all loss-making companies? Many active managers do reject them out of hand for this reason, assuming a straight-line relationship between their loss-making status and their poor performance results. And consistent with Radiant’s search for companies exhibiting ‘economic traction’, one might expect we would do the same! Not so…
While loss-making companies do indeed have negative earnings (by definition), we understand that there are other ways to gauge ‘economic traction’, and that by doing so, we can effectively identify the Loss Makers that may only be temporary Loss Makers, rather than those in permanent business decline or those that will never grow in the first place. What we have found in our research is that it may be possible to identify, ex-ante, the subset of loss-making companies that could go on to not only outperform their peers, but to outperform the Universe by a substantial margin.
Our inclusion of some loss-making companies in our portfolios is based on a belief that we need to be flexible in our definitions of fundamental strength. By applying a contextual framework to loss-making companies we improve our odds when it comes to identifying the subset of Loss Makers that defy their category profile, and go on to deliver strong returns.
You can read more on our approach to investing in loss-making companies, and the benefits that Loss Makers bring to Radiant portfolios, here: When Loss Makers Are Winners
FEATURED THOUGHTS
We have been proud to have been featured in a number of media publications, speaking engagements and podcasts this year. This quarter’s highlight:
- Radiant co-founder Kathryn McDonald shared her perspectives in a conversation with Louis Frank, CEO of Fingreen AI on the Greenshift podcast link here
For access to other news as well as our thought papers, please visit our website: www.radiantinvestors.com
RADIANT INSPIRATION
We find inspiration all around us – people and organizations doing work that is deeply meaningful and deeply necessary. These are examples that we hope you find inspiring, too:
‘NEXUS’ by Yuval Noah Harari – From the bestselling author of Sapiens, comes a beautifully written book on the history of information networks. It has been described by some as AI scaremongering, but we choose to read it as an ‘eyes wide open’ approach to new technology and a reminder that we hold the keys to our own destiny. And fun fact: the pigeon on the cover is an important character in the book!
Undammed – This short, visually stunning film was produced by Patagonia. It documents the removal of the Klamath River dams in California and Oregon, and the restoration of traditional fishing areas of the Yurok tribe. The narrator, Any Bowers Cordalis, is a tribal attorney who has fought for decades for indigenous fishing rights.
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
Radiant. The bright future of investing.
Radiant is an active equity management firm focused on outperforming the market by investing in companies that we believe will be the winners of the future. Our purpose-driven team brings breadth and depth of experience, close to 20 years working together, and a fresh, entrepreneurial perspective which gives us a unique ability to be innovative, nimble and conviction-based. Our investment edge lies at the intersection of traditional fundamental modeling, state-of-the-art ESG and Impact analysis, and innovative use of data and technology.
Radiant Global Investors LLC
21 Orinda Way, Orinda CA
www.radiantinvestors.com
Disclaimer
This newsletter is being furnished for informational purposes only. 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 written 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. Moreover, the past performance of the investment team should not be construed as an indicator of future performance. Any projections, market outlooks or estimates in this document are forward looking statements and are based on certain assumptions. Any projections, outlooks or assumptions should not be construed to be indicative of the actual events that will occur.
Please see relevant factsheet and/or link to Morningstar for detailed performance information and related disclosures. 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.
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
