Capital IdeasTM
Investment insights from Capital Group
Equity
Christopher Lee
David Cummins
Harold La
An innovative company is one that consistently produces a unique product or service that is not easily replicated by other companies. It also has the ability to drive the product or service towards long-term business growth and profitability. Unlike inventors, innovators are essentially people who take great ideas and convert them into great products.
The geography of innovation continues to evolve. Countries like the US and China have established innovation ecosystem are fuelling innovation catalysts and triggering world-changing innovation. The ingredients of a successful innovation ecosystem are what our analyst call the 5 Cs: connectivity (online communications), capital (money to invest), courage (risk appetite to invest), concentration of expertise, and channels (exit channels like IPO or M&A).
Innovation remains a critical driver for success today
Innovators have outperformed the market through consistent growth and value creation
Past results are not a guarantee of future results.
Source: May 2023, Most Innovative Companies 2023, BCG. Chart compares 50 Most Innovative Companies’ one-year total shareholder returns (TSR) for that year against MSCI World. Top 50 companies are reweighted annually to reflect changes to the list.
During the early days of the internet, we witnessed the birth of Alibaba and Baidu, which were dubbed the eBay and Google of China. What followed was a material platform shift to mobile. At that time, China had already developed an ecosystem with the 5Cs, which underpinned the creation of world-changing innovation in mobile e-commerce, super apps and short videos.
In the US, many companies have been able to navigate regulatory risks in the past decades through a combination of a strong legal team, political gridlock, and luck. With successful innovation ecosystems in place, we should continue to see future innovation coming from both the US and China.
Looking ahead, it is important to focus on how companies retain their DNA and the qualities that made them great despite the major cost-cutting measures. These companies have the potential for a longer growth runway. A higher rate environment has indeed caused much financial pain. But it has also made companies more focused, leaner, and think of ways to generate returns at a faster pace. In this tough environment, it becomes clearer which companies are improving faster than the others.
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Past results are not predictive of results in future periods. It is not possible to invest directly in an index, which is unmanaged. The value of investments and income from them can go down as well as up and you may lose some or all of your initial investment. This information is not intended to provide investment, tax or other advice, or to be a solicitation to buy or sell any securities.
Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. All information is as at the date indicated unless otherwise stated. Some information may have been obtained from third parties, and as such the reliability of that information is not guaranteed.
Capital Group manages equity assets through three investment groups. These groups make investment and proxy voting decisions independently. Fixed income investment professionals provide fixed income research and investment management across the Capital organization; however, for securities with equity characteristics, they act solely on behalf of one of the three equity investment groups.