Storm Uru

Why innovation for income investing?

Storm Uru

Covid-19 is not the first nor the last black swan event to shake the world economy, and it will have far-reaching consequences.


What will these be for investors? Carlota Perez’s work on technology revolutions is an important starting point. Perez shows in her timeless book, Technological Revolutions and Financial Capital, that repeated surges of technological development over the past three centuries follow large economic shocks. This is because new technology is adopted by firms given no other option to survive as seen in the age of steam and railways, steel and electricity, mass production, and the automobile evolution. 


Pulling this concept into 2020 for the age of information and telecommunications, it’s difficult to argue against the importance of digital transformation or a culture of innovation. Before this year, business leaders and investors could overlook the importance of innovation and the rise of the new economy. But as we hit a new juncture, where old tired companies can no longer effectively compete, it is more dangerous than ever to invest in companies that don’t have a culture of innovation. 


Why is innovation relevant to investing? A culture of innovation is one of the five key characteristics we use when searching for the best-in-class operator within an industry because it drives a company forward, defending it from competitors and seeding the next leg of growth.  To us, a culture of innovation is a relentless focus on product improvement, customer centric mentality, and disciplined investment in the business to generate further success.


It’s important to draw on past events to help frame the world in this uncertain time and recognise the large technological changes happening. Businesses with a culture of innovation are well-positioned to drive earnings and dividend growth as we emerge from the current economic shock.


The best-in-class companies we call Global Leaders have this culture of innovation. As an income investor I want to own Global Leaders because they are growing, financially strong companies that can increase their dividends.


Liontrust Insights

For a comprehensive list of common financial words and terms, see our glossary 


Key Risks

Past performance is not a guide to future performance. Do remember that the value of an investment and the income generated from them can fall as well as rise and is not guaranteed, therefore, you may not get back the amount originally invested and potentially risk total loss of capital. Investment in funds managed by the Global Equity (GE) team may involve investment in smaller companies - these stocks may be less liquid and the price swings greater than those in, for example, larger companies. Investment in funds managed by the GE team may involve foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. The team may invest in emerging markets/soft currencies or in financial derivative instruments, both of which may have the effect of increasing volatility. Some of the funds managed by the GE team hold a concentrated portfolio of stocks, meaning that if the price of one of these stocks should move significantly, this may have a notable effect on the value of that portfolio.


The information and opinions provided should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Always research your own investments and (if you are not a professional or a financial adviser) consult suitability with a regulated financial adviser before investing.
Friday, July 17, 2020, 9:45 AM