"Hope all is well with you and yours?
"Could you ask either David or Eoin what selection/filter process is used to include a stock in the Autonomies list?
"All the very best to you all for the forthcoming festivities.
Thank you for this question which may be of interest to other subscribers. We began developing the Autonomies theme as early as 2011, as we identified a confluence of factors that were giving an advantage to truly global companies. I wrote extensively on this subject in my book Crowd Money but let me summarise.
The rise of the global middle class is a secular development and represents the greatest poverty reduction in human history not least because it is focused on the world¡¯s major population centres. The corollary is that as more people have disposable income at the end of each month, both their needs and wants evolve. Companies with the ability to tap into this tide of rising demand for just about everything are therefore in a very favourable position.
The exponential rate of technological development has reached a point where previously half imagined possibility is becoming reality. This is having the most profound effect on the healthcare, lifestyle, materials, industrial and energy sectors. Nanotechnology, embedded processing, new materials such as graphene and carbon nanotubes, robotics, smarter computers, genetics and other innovative technologies are all coming-of-age at the same time. Additionally their development and combination opens up the capacity for synergies that will help drive future innovation.
Following a decade of historically high energy prices entrepreneurs have begun to bring new unconventional supply to market, have substituted oil for natural gas or coal and consumers have rediscovered their enthusiasm for conservation. The result is that energy prices are more likely than not to trend gradually lower in real terms from later this decade.
As investors we are faced with a wide number of choices. Broadly speaking we have option of attempting to pick the companies most likely to deliver the next innovation and/or investing in those that will benefit most from purchasing that new innovation. The Autonomies represent a mix of these types of companies. Truly global organisations have the economies of scale to tailor their product offering to the market they are active in. A constant focus on the bottom line means that they are likely to be among the biggest customers of companies delivering innovation but also the greatest beneficiaries of adopting productivity enhancing machinery, software, services and methods. With strong balance sheets they can generally sustain reliable dividends but can also fund or buy R&D so they are capable of delivering innovation on their own.
As a capitalist economic model is adopted by increasingly large numbers of countries, the pace of consolidation is likely to increase. This is of direct benefit to the biggest companies where an increasingly large number of sectors are dominated by oligarchies. For example while the iron-ore triumvirate of Rio Tinto, VALE and BHP Billiton is well known, oligarchies dominate other sectors such as compressed gases, fertilisers, advertising, internet searches, soft drinks, snack foods and confectionary, footwear, social media, outsourcing etc.
In order to create a list of companies that represent these cross currents I look for shares that generate at least 40% of their revenue outside their domestic market, that dominate their respective niche and have strong balance sheets, often with a solid record of dividend increases. Here is a link to the most recent comprehensive review of the list from Comment of the Day on July 11th.