Gravity Investing Strategy Points to Seemingly Unavoidable Trends in the Market and to Some of the Companies Poised to Benefit from Secular Changes

Wall Street Transcript

67 WALL STREET, New York - May 13, 2013 - The Wall Street Transcript has just published its Investing Strategies Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Investing in Financial Services - Long-Term Investing - Large Cap Investing - Value Investing - High Quality Companies - Bottom-up Investing - All-Cap Growth Investing - Investing in Emerging Markets

Companies include: American Community Properties (APO), The Blackstone Group (BX), KKR Financial Holdings LLC (KFN), Franklin Resources Inc. (BEN), HJ Heinz Co. (HNZ)

In the following excerpt from the Investing Strategies Report, an expert analyst discusses the outlook for the sector for investors:

TWST: Describe further your investment philosophy. You have a term you use, "gravity investing."

Mr. Miles: Gravity investing is essentially a thematic overlay that we employ within our portfolio research that seeks to observe and exploit trends in the global economic and social landscapes which we think are leading to seemingly unavoidable and highly predictable outcomes. We liken the predictability of some of these story arcs to essentially that of dropping a brick out of a two-story window. Unless some outside force really comes out and interrupts or influences in a very dramatic way the trajectory of that brick, that brick is going to hit the ground. And there are a number of story arcs in the global economy that we think are suggesting unavoidable or highly predictable outcomes that will drive capital flows and investment for years to come. Some of these key themes have become more evident today, as the world has evolved. But when we began circulating these ideas in 2004, they were pretty innovative.

One such example is the urban migration trend, where we see people from the rural developing and rural developed world moving into cities where they can engage in commerce and access a broader range of goods and services. We call that "moving to the aqueduct," and we like to refer to the story of ancient Rome to demonstrate its importance. By 100 A.D., when Rome was at its peak, the city was serving over a million people and had over 11 working aqueducts that were delivering water and retrieving waste water. With the fall of Rome and the destruction of the aqueducts, in a very short period of time - less than 10 years - the population of Rome dwindled from a million to under 300,000, and much of the technology was lost for centuries until resurfacing during the Renaissance. So this concept of the aqueduct is a central theme that we think will drive capital flows as people continue migrating to urban centers.

This theme dovetails nicely with another gravitational trend we call "resource lifecycle management." The world is recognizing that the era of cheap and easily accessible energy, water and food is being challenged by resource scarcity, emerging demand trends in parts of the world, including Latin America, Asia and the Pacific Rim, and environmental regulation. And those factors in concert are creating bottlenecks that can only be solved through efficiency technologies, products and services that pull costs out of these high-cost systems. So we look at the key areas - providing health care in the Western world, where you have aging demographics and the costs are rising; securing new energy supplies, delivering food in the emerging world, managing water quality and distribution, managing waste streams effectively. If you can pull costs out of these high-cost systems, if you can create the technologies, services and products that help resolve bottlenecks within the water-energy-food nexus, you are likely to see a lot of growth in an otherwise topline challenged world.

In all, we have identified 12 key themes. Others include...

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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