Our Investment Thesis

Inflection Point’s “sustainability alpha” investment thesis is quite straightforward, and is based on the following convictions:

Changes in investor convictions and expectations trigger stock price changes. Exploitable sources of excess return generally arise from consensus errors in estimating growth and valuation changes, and a failure to recog-nize important change catalysts and inflection points.

Generating superior returns requires accurately anticipating changes in companies’ competitive prospects before the broader market recognizes them.

“Extra-financial” risks and value drivers, including environmental and social factors, are among the most powerful – but least recognized – catalysts for significant changes in companies’ competitive positions.

Traditional financial analysis simply cannot possibly provide a complete picture of companies’ true competitive risks, value potential, and future performance. Typically, at least 70% of a company’s value is driven by “intangibles”. The most important of these is arguably “management quality”.•      

Management quality may be the single factor most critical to companies’ competitiveness, profitability and, ultimately, their share price performance; in spite of this, however, it is only rarely defined, measured, or analyzed systematically by analysts. It is therefore, the “Holy Grail” of 21st century investing.

Investors who can and do develop robust, forward-looking measures of management quality will gain an enor-mous information advantage – and therefore a financial performance edge. We therefore consider assessing companies’ management quality in a systematic and forward-looking way to be the #1 focus of our investment research.

“Sustainability” performance and strategic positioning are becoming increasingly robust and proxies and leading indicators for the quality of companies’ strategic management; companies with superior sustainability performance and positioning tend to be:

• More agile, adaptable, and able to respond quickly to a rapidly-changing competitive environment
• More forward-looking
• Better managed companies overall, and therefore:
• More likely to outperform financially, in the medium and long term.

A constellation of increasingly powerful, secular global mega-trends is dramatically re-shaping companies’ competitive environments, in ways which promise to increase the “sustainability alpha premium” even further over the next 5-10 years.

Corporate “sustainability” is about much more than “ESG”; factors such as their innovation capacity, adaptability, and responsiveness will also be critical to their future competitiveness, and must therefore be analyzed, consistently and in-depth.

Comprehensive, sophisticated, institutional-quality research on companies’ very different capabilities in these areas in extremely rare. Investors with timely access to them possess a powerful information advantage, which can be monetized.

The most compelling investment solutions will be those which combine institutional – quality sustainability research with best-in-class fundamental and quantitative asset management capabilities.

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