RADIANT VIEW
THE RADIANT QUARTERLY NEWSLETTER
VOLUME 9 - Q4 2024
RADIANT BUSINESS UPDATE
Business Progress
December 31st marked the end of an ebullient year for financial markets and an experiential one for Radiant. Despite a challenging final quarter for small cap stocks, we were pleased to close the three-year track record for our flagship US Small Cap Growth strategy with strong relative and absolute results since inception. With this critically important milestone achieved, we look to 2025 hopeful that we can leverage the investment platform we have built to the benefit of a broader client base, and the opportunity to engage with a wider audience.
In our discussions with clients and prospects we continue to make the case for boutique asset management. In our business, firm size does not necessarily equate to outperformance and there are myriad examples in which the risk of large firms has been significantly underestimated. Even so, there is a clear gravitational pull in our industry to BIG—we believe, stemming from a perspective that bigger means better and/or safer[1]. BIG can mean good things like more access to resources, global reach, brand recognition, lower cost or cheap access….but BIG can also mean bureaucracy, silos, and lack of innovation.
As a boutique asset manager, we go to great lengths to give clients comfort in the institutional-quality firm we have built, at the same time, making every effort to emphasize all of the advantages of a boutique—nimbleness, creativity, purpose, and being fully invested in every way. We are not suggesting that there aren’t risks with smaller firms; rather, when you think about potential upside denominated by potential risk, we think that some just get that ratio wrong. We encourage investors to consider the benefits of seeking out the kinds of innovative approaches (and often uncorrelated sources of return) that some small, credible firms offer. At Radiant we hope to be a shining example of the unfortunately rare boutique that defies the forces of BIG.
[1] The top 20 asset management firms account for 85% of assets under management in the US. Source: Institutional Investor, 2024, The Biggest Asset Managers Keep Getting Bigger. But Small Ones Have Reason to Hope.
Update on Investment Strategies
2024 was again a year of generally strong performance in equity markets in the US and around the world. We are encouraged that our investment approach is viewed as differentiated and value-added and that demand for small cap equities appears to be increasing worldwide.
Our flagship US Smaller Companies strategy (link to Small Cap Growth strategy factsheet) has crossed the three-year track record milestone as of 31 December 2024. 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, maintaining our four-star, five-globe profile We are especially delighted to see our efforts translating into consistent positive inflows into the Fund.
We are still on track to launch the Irish-domiciled vehicle in our US Small Cap Core strategy (link to Small Cap Core strategy factsheet) in early 2025 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 in light of finding better opportunities outside The ‘Magnificent 7’.
Our benchmark-agnostic, thematic global equity model portfolios—One Life and Positive Transformation—have now completed their two-year track records as of 31 December 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.
Please see relevant factsheet and/or link to Morningstar
for detailed performance information and related disclosures.
INVESTMENT PERSPECTIVE
At the time of this writing, the new Trump administration has announced a broad array of initiatives affecting government employees, US participation in global health and climate initiatives, and immigration. But it is arguably Trump’s willingness to use tariffs that has most impacted the equity market. As tariffs are a tax paid by importers on foreign-made goods, they have been used historically to boost domestic production and protect domestic industry as well as to generate tax revenue. Their inflationary nature is well documented as they typically result in higher costs for consumers. Tariffs – whether actually implemented or merely threatened – will affect US companies big and small. The knock-on effects of tariffs have the potential to both hurt and help US small stocks.
To gauge how individual companies might be affected by tariffs, it is important to understand their supply chains. ‘Supply chain integrity’ is something that Radiant considers within its sustainability analysis, with transparency being a key component. Supply chains are notoriously opaque as they have increased in complexity and secrecy as companies have sought competitive advantages via proprietary methods, often intertwining public and private suppliers across geographic borders. But seeking transparency is key if we are to understand the impacts of tariffs. In the simplest terms, tariffs seek to tax imported goods. In theory, this applies to both goods from foreign suppliers and those of US companies that manufacture abroad (assuming no exemptions are granted).
The Trump Administration’s recent threats of tariffs on goods from Mexico and Canada, as well as the new implemented tariffs on goods imported from China have the potential to increase costs to US companies that will choose to either absorb the costs internally or pass them along to customers in the form of higher prices. Therefore, as investors, we are well advised to investigate our portfolio companies’ supply chains’ exposures to countries (Mexico, Canada, China) that are currently in scope for the Trump tariffs in order to better understand future threats and opportunities to their business models.
When we dig into our US small cap growth portfolio, we see only a handful of companies with meaningful potential exposure to these country-centric tariffs. Our analysis considers location of company facilities, supplier domicile country, and location of supplier facilities. Admittedly, this is an imperfect view in that private supplier companies are difficult to capture, but we believe it to be indicative of the country risk faced by these firms.
Source: Radiant Global Investors, Bloomberg, December 2024
The Percent Company Facilities exhibit shows the proportion of a firm’s production facilities in the three countries in question. Among the companies in our portfolio, it appears that those that choose to do offshore production prefer Mexico and Canada over China. For example, Kontoor Brands, a clothing manufacturer, has just over 40% of its facilities in Mexico. When it comes to Percent Suppliers Domiciled, the data can be a little misleading when we try to apply it to tariff logic. For example, one of the two companies with 50% of their suppliers domiciled in Canada is Jackson Financial, a US financial services company specializing in annuities.
The company has two main suppliers: Oracle, a US firm, and City Office REIT, a Canadian headquartered company. The latter does not represent a ‘product’ that is ‘imported’ to the US, rather foreign ownership and management of US property – not a target of traditional tariffs. More relevant is the data on the location of supplier facilities (Percent Suppliers Facilities). Three companies in our portfolio had greater than 30% of their suppliers located in China. All are within the Electronic Equipment, Instruments and Components industry. Not surprisingly, of the twelve companies that had greater than 10% of their suppliers based in China, eight were Technology firms in similar lines of business. To be clear, the point of this analysis is not to part ways with these firms in a knee-jerk fashion. After all, the effects of any tariffs will be company-specific and dependent on factors such as demand elasticity and product end user. Our motivation is simply to understand our exposure to tariff risk and take steps to diversify our holdings, as appropriate.
We believe the effects of tariffs (again, both real and threatened) as part of an overall trade policy that seeks to emphasize ‘America first’, benefitting ‘American workers, manufacturers, farmers, ranchers, entrepreneurs, and businesses’ may prove a mixed blessing to US small cap companies. We certainly worry about the inflationary effects of tariffs generally, which could cause the Fed to pause additional rate cuts.
To the extent companies cannot pass along increased tariff costs to their customers, these policies may eat into margins. And, if global trade partners are inspired to counter with tariffs or barriers to trade of their own, we could see fewer foreign markets for US products. But US smaller companies typically earn a greater percentage of their revenue from domestic sources (as compared to large cap companies), and the ‘America first’ mentality could very well benefit smaller, nimble US firms that are prepared to step up and meet new sources of demand arising from global trade disruptions. We remain bullish on US small cap companies but argue that active management within the asset class has never been more critical. The threat of a resurgence in inflation, the risks posed by global supply chains, and the unpredictable nature of Trump’s policy announcements make informed stock picking all the more essential.
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:
Chain Reaction
Why Global Supply Chains May Never Be the Same | WSJ Documentary – YouTube
Sticking with the supply chain theme, we have recently had good reason to revisit this 2022 documentary by the Wall Street Journal. The COVID pandemic caused a ripple effect in global supply chains that led to significant global trade challenges. Not only did COVID lay bare the fact that we are all connected by health, it opened our eyes to the interconnectedness of our consumption.
Sponge Cities
Flood-Proof Cities Concept – Professor Kongjian Yu’s Sponge Cities
Just as it sounds, sponge cities seek to build urban infrastructure using natural elements that act as a sponge, able to absorb water. Professor Kongjian Yu, the most famous of the sponge city evangelists, advocates a reframing of our relationship with water: we need to think less about fighting water, and more about living with it. We take great inspiration from the science and the beauty of these green urban landscapes.
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 sustainability 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.
