Can you give a brief overview of your strategy in terms of what you are trying to achieve for investors, your investment process and the make-up of the investment team?
The Strategy's philosophy is founded on the belief that superior financial returns can be generated through forward-looking investments that contribute to positive social and environmental outcomes.
Companies providing solutions to key sustainability challenges have attractive long-term growth optionality that is often underappreciated by the market, in our view. Companies with stronger ESG practices can also possess overlooked competitive advantages and stronger business models with reduced risk profiles. The Strategy seeks to exploit these market inefficiencies.
The Strategy combines a top-down methodology of investing in sustainable themes through companies linked to the United Nations Sustainable Development Goals (SDGs) with detailed bottom-up stock analysis that includes a comprehensive assessment of material ESG factors, a stringent valuation process and balanced portfolio construction.
Many equity investors build portfolios by starting with a benchmark. They then overweight companies with stronger return potential and underweight stocks with weaker prospects. A problem with this approach is that benchmarks may tell you what has worked in the past, but do not indicate what the future will look like.
This is why we believe sustainable themes are a better way to create a forward-looking portfolio. Choosing themes that focus on where the world is going can help investors create a portfolio designed for long-term growth. Throughout our history of investing in ecosystems of change, we have identified three primary themes—Climate, Health and Empowerment. Our portfolio is built around these sustainable themes and their more definable sub-themes representing massive, multi-decade growth opportunities that we expect to persist for decades to come.
The Strategy is managed by Daniel Roarty, Chief Investment Officer (CIO), who is responsible for day-to-day security selection. He builds portfolios using the research produced by a team of dedicated research analysts, drawing upon their expertise and conviction. Mr. Roarty may also draw upon AllianceBernstein's deep research resources around the globe to identify the most attractive investment opportunities.
How are you positioning your portfolio for 2022 and what will be key issues for investors?
Countries representing 90% of the world's GDP have made net-zero pledges. Annual investments needed to decarbonize the global economy will increase four-fold over the next decade from US$1.2 trillion in 2020 to US$4.3 trillion by 2030. Companies that provide the solutions to help countries achieve their net-zero ambitions, including clean energy, sustainable transportation and resource-efficiency solutions, have strong multidecade growth opportunities.
Less than half of the global population is covered by essential healthcare services, and roughly a quarter struggles with food insecurity and lacks access to safely managed drinking water. With the global population set to hit 10 billion by 2050, this is a key area for growth. Health-related themes like broadening access to healthcare, food security and clean water benefit from similarly attractive long-term demand.
Predicting short-term twists and turns in the economic cycle with any accuracy or consistency has always been challenging. At the margin, we believe shorter-duration growth stocks currently look more attractive on a valuation basis than longer duration, higher valuation companies. Our process and our historical success is not reliant upon forecasting short-term twists and turns. Rather, we continue to focus on the fundamental strength and long-term appeal of our sustainable themes.
Can you identify a couple of key investment opportunities for your fund you are playing at the moment in the portfolio? This could be at a stock, sector or thematic level.
Synthetic biology is a forward-looking secular growth trend that we're deeply interested in. At a high level, synthetic biology takes a natural cell and provides it DNA instructions to perform a certain task.
An example: In the 1970s, all the world's insulin supply was harvested from pigs. If this were still the case, we would need more pigs on the planet than people to meet demand for insulin. Thankfully, a group of scientists discovered in the 1970s that by providing a yeast cell with DNA instructions, you could get it to produce insulin. This was the first major discovery in the field of synthetic biology.
With advancements in gene sequencing, machine learning and artificial intelligence—synthetic biology is becoming more versatile. McKinsey have estimated that up to 60% of material inputs into the global economy can be produced sustainably though synthetic biology—not just in biotech, but in material manufacturing, cosmetics, packaging and numerous other industries.
Our team has conducted a special cross-sector research project on synthetic biology. Several companies we currently own in the portfolio sell key "enablers" in the synthetic biology "gold rush." For example, Danaher makes instruments and consumables used by labs to discover and develop new materials. Another example, Becton Dickinson, makes high-precision lab equipment that is key in this process.
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