Exploring the White Space

As industries evolve and markets transform, it is essential to reach beyond traditional investment analysis and think about the white space between asset classes, sectors, geographic regions, and investment teams.

Connectivity 2018

Data Scientists of the Future

Experian provided examples of how credit information services are using big data, artificial intelligence, and machine learning to create innovative customer solutions.

Working in Partnership

Companies such as Experian receive a substantial number of product ideas per year, with many coming from clients. Ideas currently focus on growth rather than risk mitigation.

Authenticating Identities

Individuals’ data can be “clustered” based on what they buy; banks can use this data for targeted marketing purposes, following “know your customer” regulations, and reducing fraud.

Granting Credit

In select countries, you can now obtain credit via text message; the credit application process is also being streamlined with instant form fill, improving the customer experience and making it easier for individuals to gain access to credit.

What Keeps You Up at Night

A panel of institutional investors discussed the challenges they face in the current market environment and portfolio strategies they are implementing to address these concerns.

Higher Correlations

If equity markets decline in response to rising interest rates, the fixed-income asset class may not provide sufficient downside protection. One investor has diversified by increasing allocations to lower-volatility alternatives.

Liquidity Concerns

While it’s challenging to manage systemic risk, one institutional investor focuses on aligning organizational goals, cash flows, and liquidity—and keeping dry powder available for unique opportunities.

Complacency and Opportunities

The market may be complacent about systematic changes that could impact reversion to the mean and historical valuations. Speaking of valuations, one panelist believes that emerging markets and greater China appear interesting.

Cybersecurity in a Digital World

IT security solutions must adapt to protect informational assets, says Philip Quade, chief information security officer of Fortinet and former chief of the NSA Cyber Task Force.

More Data = More Threats

The increasing digitization of businesses is driving a massive escalation in data production, and more data means more opportunities for hackers, with almost any type of information representing a potential target (such as credit card numbers, healthcare records, and intellectual property).

Hacking Isn’t Hard

Given increasingly creative social engineering and phishing tactics, an attack doesn’t have to be sophisticated to be successful, and it takes only one breach to create impactful damage.

Four Elements of a Cybersecurity Defense

To adequately address today’s threats, companies need speed, integrated IT solutions, segmentation (on-site perimeters as well as the virtual ecosystems in which company systems and data reside), and continuous evolution.

China Rising

China’s per-capita gross domestic product has risen 28 times in the past three decades, an illustration of the country’s transformation story.

Cascading Growth

The One Belt, One Road initiative shows the willingness of China to invest in unprecedentedly large engineering projects, which is good for China’s domestic growth as well as the growth of nearby emerging markets.

A Massive Consumer Market

Individuals are no longer saving as much; instead, they’re spending, particularly on luxury items, including travel. This is not just the case for millennials, but the older generation as well.

A Global Leader in Innovation

Contrary to conventional perception of China as the world’s largest manufacturing center, it is in fact one of the most innovative countries in the world, making strides in ecommerce, semiconductors, healthcare, artificial intelligence, and green initiatives.

Exploring the Concept of Blended Value

Integrating environmental, social, and governance (ESG) considerations with financial objectives expands William Blair Investment Management’s tool kit.

Women and Millennials—Driving Forces

Driving support for ESG considerations are institutions (including large pension plans, endowments, and foundations) and individuals (particularly millennials and women, who have higher interest in ESG investing and are controlling more wealth).

No Trade-off With Performance

A growing body of research debunks the idea that there is a trade-off between financial performance and good ESG practices. A Deutsche Bank study concluded that 90% of 2,200 ESG studies found a non-negative link between ESG and corporate financial performance.

Pros of Green and Sustainable Bonds

While green bonds require the proceeds to be used for environmental purposes, sustainability bonds allow for a broader use of proceeds (such as driving sustainable practices within a supply chain)—and both are priced similarly to general corporate bonds, but tend to have other attractive attributes such as lower volatility and reduced frequency of downgrades.

AI Applications in Traditional Industries

Artificial intelligence isn’t just for start-ups; protein engineering company Codexis explained that companies in traditional industries are using it to revolutionize the development of new drugs, foods, and industrial products.

Right Protein = Right Outcome

The engineering of proteins—which facilitate chemical reactions in living organisms—enables the creation of the right protein for a desired outcome.

From Two Years to Two Months

Ten years ago, the design of one protein required 20 scientists working for one to two years employing highly manual processes. Today, two scientists can complete that same project in just months, thanks to artificial intelligence.

Saving Stevia

Protein engineering was used to remove the bitter aftertaste from Stevia, a zero-calorie, all-natural sweetener extracted from the leaves of a plant native to South America.

What We’ve Heard

At our inaugural CONNECTIVITY client conference, we launched a poll to gather feedback from attendees on important issues. See the results of five questions that investors are facing today.

1. Which sector will be most disrupted by technology over the next five years?

2. What is your top strategy for managing risk?

3. Which ESG topic will be most important to you in 2019?

4. What is your top near-term concern regarding your investment portfolio?

5. Where are you expecting to allocate capital in 2019?

Gain More Insights

SUBSCRIBE TO OUR BLOG

Create an
Enduring Partnership

Our active ownership culture creates long-term client relationships by helping you achieve successful investment outcomes. Contact us to learn how we can partner with you.

Any statements or opinions expressed are those of the author as of the date of publication, are subject to change without notice as economic and market conditions dictate, and may not reflect the opinions of other investment teams within William Blair Investment Management, LLC.

This content is for informational and educational purposes only and not intended as investment advice or a recommendation to buy or sell any security. Investment advice and recommendations can be provided only after careful consideration of an investor’s objectives, guidelines, and restrictions.

Factual information has been taken from sources we believe to be reliable, but its accuracy, completeness or interpretation cannot be guaranteed. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be interpreted as investment advice, as an offer or solicitation, nor as the purchase or sale of any financial instrument. Statements concerning financial market trends are based on current market conditions, which will fluctuate. William Blair does not provide legal or tax advice. Please consult your tax and/or legal counsel for specific tax questions and concerns.

Investing involves risks, including the possible loss of principal. Equity securities may decline in value due to both real and perceived general market, economic, and industry conditions. The securities of smaller companies may be more volatile and less liquid than securities of larger companies. Investing in foreign denominated and/or domiciled securities may involve heightened risk due to currency fluctuations, and economic and political risks, which may be enhanced in emerging markets. Investing in the bond market is subject to certain risks including market, interest rate, issuer, credit, and inflation risk. Currency transactions are affected by fluctuations in exchange rates; currency exchange rates may fluctuate significantly over short periods of time. Diversification does not ensure against loss. Any investment or strategy mentioned herein may not be suitable for every investor. Past performance is not indicative of future results.

The MSCI ACWI IMI Index is a free float-adjusted, market capitalization-weighted index that captures large, mid, and small cap representation across developed and emerging markets. The MSCI ACWI Small Cap Index is a free float-adjusted, market capitalization-weighted index that captures small cap representation across developed and emerging markets. The MSCI Emerging Markets Index is a free float-adjusted, market capitalization-weighted index that is designed to measure the equity market performance of emerging markets. The MSCI World Index is a free float-adjusted, market capitalization-weighted index that is designed to measure the equity market performance of developed markets. The Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, mortgage-backed securities (agency fixed-rate and hybrid ARM pass-throughs), asset-backed securities and commercial mortgage backed securities. The Russell 2000 Index is a market capitalization-weighted index designed to represent the small cap segment of the U.S. equity universe. Index performance is for illustrative purposes only. The indices are unmanaged, do not incur fees or expenses, and cannot be invested in directly.

Alpha is a measure of an investment's return in excess of the market's return, after both have been adjusted for risk.

Half-life is a statistical measure of the time required for the discrepancy between price and value to contract by half of its starting value. Fundamental value estimates are based on the Dynamic Allocation Strategies team's proprietary research.

P/E Ratio is a measure of valuation which compares share price to earnings per share, calculated using estimates for the next twelve months.

Standard deviation is a statistical measurement of variations from the average.

QUANTITATIVE MODELS—FACTOR DEFINITIONS

The William Blair Earnings Trend Model captures information about short- and medium-term changes in analyst estimates in an attempt to anticipate future estimate changes and stock performance. The score combines measurements of earnings revisions, momentum, and earnings surprise.

The William Blair Valuation Model combines varying metrics used to characterize the relationship between the stock’s trading price and its intrinsic value. By going beyond using only one or two measures, the model attempts to build a more holistic version of a stock’s worth vis-a-vis the market. The score combines measurements of earnings/cash flow based, asset-based, and model-based factors.