Three Tenets for Investing in Innovation

With global economic growth experiencing a slowdown this year, some investors may be concerned about valuations for the innovative companies that have been popular during the past decade. Against this backdrop, Franklin Equity Group’s Matt Moberg explains why he thinks select companies have the potential to grow faster than the overall market in the next decade and beyond. He also shares his team’s three guiding principles for investing in these companies.

As we move closer to 2020, we’ve received more questions from growth-minded investors about whether it’s still a good time to invest in innovation. In many cases, these investors seem to doubt companies focused on shaking up the status quo can perform as well in the decade ahead as they have during this one.

It’s an understandable concern considering that some of these companies have grown to be among the largest in the world, based on market capitalization. In many cases, these larger companies have become household names and are now the most widely covered by the media and equity analysts. As such, they tend to get critical attention for their valuations, particularly during periods of decelerating global growth.

Why We Think the Market Often Misprices Innovation

When we look across the global investment landscape, we see innovation accelerating at a faster pace than ever. We seek to invest in innovative companies with the vision to navigate the pace and scale of change and deliver sustainable growth.

We focus on companies with superior management, strong business models and exposure to secular tailwinds for growth. In our view, some are generational companies that have the potential to grow faster than global gross domestic product through 2030 and beyond.

Since 1968, we have developed and refined a process for investing in innovative companies. We follow three guiding tenets: