How are you managing your innovation strategy?

Key takeaways:

• The exponential growth in the intangible economy is upending capital markets, and traditional asset pricing models are struggling to keep pace
• With clear focus, the Alger Russell Innovation Index identifies the foremost innovators in today’s market by means of R&D intensity coupled with profit scoring
• In addition to its performance and diversification characteristics, the Alger Russell Innovation Index features attractive valuations from a fundamental perspective

Points of differentiation:

• Starting from the Russell 1000 universe, the Alger Russell Innovation Index takes a two-pronged approach to isolating pioneers of the next wave of innovation in the U.S. large cap ecosystem. R&D intensity (R&D/Enterprise Value) is combined with profitability, evaluating the success in translating investment into economic viability business and commercial opportunities
• In simulated past performance, the methodology has accrued significant returns, demonstrating its effectiveness both as a standalone holding and when integrated with other mainline asset exposures
• Allocating 10% as an innovation sleeve to a Russell 1000 portfolio would have increased overall returns by 69 bps annualised over the 20-year period, while volatility would only have risen by a statistically insignificant 2 basis points

What does our research mean for investors?

Innovation is transforming financial markets in ways investors are only beginning to recognise amidst the lighting-fast pace of technological disruption. A gold-standard in technical and commercial success can be eclipsed overnight; the only solution may be to invest for the future or be subsumed by it. The Alger Russell Innovation Index intelligently captures innovation pioneers with the potential to not only ride the next wave of innovation but be the propagating force behind it. This unique approach yields compelling results from performance, diversification and valuation standpoints and provides an ideal complement to broad US Equity allocations.