Investing in innovative companies

Every few years, someone comes up with a fresh way of tackling an issue. Their solutions are often so straightforward that everyone else wonders why they hadn’t thought of it before. Such ideas can come from anywhere. Some will be driven by regulatory changes; others by general disillusionment with how something operates.

These entrepreneurs turn their ideas into innovative companies with the power to disrupt long-established industries. The most successful become multi-billion-dollar giants. You only need to consider how Airbnb has shaken up the international accommodation market in recent years – or the impact Uber has had on taxis – to illustrate the point.

And fund managers are constantly searching for businesses like this - firms with the potential to catapult their portfolios to the top of the performance tables.

Here, we take a look at some of the most prominent ‘disrupter’ names in the world today – and the investment fund managers tasked with spotting the next ‘game changers’.

Shopify

The all-in-one commerce platform, which was initially started more than a decade to sell snowboards online, is today the power behind millions of businesses, as well as being a successful quoted company in its own right and feted by enthusiastic investors. It is also one of the largest holdings* in the Artemis Positive Future fund, which buys stocks that have a positive environmental and/or social impact. In fact, this fund is tapping into the disruptive trend of pushing for better environmental, social and governance measures within investments.

Apple

Apple is, without doubt, one of the biggest disruptors of the last 40 years. The US technology company has revolutionised computers, mobile phones and, more recently, watches.

The launch of its latest iPhones generates excitement around the world – as well as causing mammoth queues that require overnight camping to ensure a prime position. The company is currently the second largest stock holding* in the AXA Framlington American Growth fund managed by Steve Kelly.

Amazon

In the mid-1990s, entrepreneur Jeff Bezos started selling books online. Today, Amazon is one of the world’s most prominent ecommerce websites, selling all manner of goods. The company is one of the top 10 holdings* of the Invesco Global Focus fund that’s been managed by Randall Dishmon for almost two years. In fact, this fund has no shortage of game changing companies, as its largest position* is in Facebook, Mark Zuckerberg’s social media giant, which is now known as Meta.

Domino’s Pizza

Another game changing company is Domino’s Pizza. More than a decade ago, the company focused on making it easy for customers to order via their mobile phones. At the time this was really innovative. The company, which has more than 18,000 stores in around 90 markets, is one of the largest holdings in the T. Rowe Price US Smaller Companies Equity fund*. Its other innovations include the enabling customer to track the progress of their order from the moment it was placed to when it was received.

The new breed of game changers

But what about the next generation of disruptors? The good news is there’s no shortage of funds that are keeping a close eye on the most exciting entrepreneurial ideas – and then snapping them up for the portfolio.

Baillie Gifford Global Discovery fund is a prime example. It invests in companies that offer significant growth prospects – with an emphasis on those operating in industries with potential for structural change and innovation. Current holdings* in the portfolio, which is managed by Douglas Brodie, include Tesla Inc, Elon Musk’s iconic electric vehicle manufacturer. It also holds Upwork, the freelancing platform, as well as Ocado, the advanced end-to-end ecommerce, fulfilment and logistics platform.

Then you have the Rathbone Global Opportunities fund, which scours developed countries for “innovative and scalable” businesses that are growing fast and shaking up their industries. “To be successful, we believe businesses have to offer something that others can’t match – a star quality,” the manager stated. “They must be easy to understand, different to their competitors, durable to change and difficult to imitate.” Prominent holdings* in the portfolio include software giants Microsoft and Adobe Systems, along with Hermes International, the parcel delivery business.

Then there is the GAM Star Disruptive Growth fund. Its largest holdings include many stocks that are in the throes of revolutionising their respective industries. One such example is Netflix*, the global streaming video on-demand service. This company started life as a mail order DVD firm back in 1997. Today it boasts more than 200 million subscribers around the world who pay to watch shows, films and documentaries.

As the name suggests, Guinness Global Innovators fund is all about finding, and investing in, innovative and disruptive businesses which are changing the world in which we live. The team creates its investment universe by identifying nine innovation themes. These themes are: advanced healthcare; artificial intelligence and big data; clean energy and sustainability; cloud computing; internet, media and entertainment; mobile technology and the internet of things; next generation consumer; payments and FinTech; robotics and automation.

And finally, IFSL Marlborough Global Innovations fund was formerly known as Marlborough Global Technology, but it was rebranded and taken over by Guy Feld in October 2020. It is now a concentrated portfolio of fast growing, innovative companies. It has a heavy weight to technology firms, but it will invest in innovative disruptive companies from any sector. The fund can invest globally but most of the investments are in the US or the UK. At least 50% of the fund must be invested in smaller companies.

*Source: fund factsheet, 31 December 2021

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The views expressed are those of the author and do not constitute financial advice.