Innovation-Based Stock Picking

Rishi Sadarangani: 

Hi, Elana. Thanks for having me. 

Elana Margulies-Snyderman: 

Absolutely, Rishi. So, to kick off the conversation, tell us a little about the firm and how you got to where you are today. 

Rishi Sadarangani: 

R/Evolution Gate, Elana, is a New York-based asset manager and our focus really is innovation-based stock picking, capitalizing on innovation to build high-conviction portfolios for our clients. The firm's edge really lies in a rigorous process, a proprietary process, with stringent risk management that has been honed over a couple of decades. And this process aims to capitalize on the behavioral and financial market anomalies that often afflict innovation-based companies and result in significant mispricing of these businesses and their securities. Our process capitalizes on this undervalued innovation and is designed to exploit the inefficiencies here. Prior to starting R/Evolution Gate, I worked on the buy side for a couple of decades at several leading money management firms in New York, managing $6.5 billion cumulatively in investments. 

Elana Margulies-Snyderman: 

Rishi, thank you for sharing your journey. That segues nicely into the follow-up question I have for you. Given your focus on innovation-based stock picking, I would love to hear your high-level outlook for the space. 

Rishi Sadarangani: 

Elana, the outlook for innovation-based stock picking has never been brighter. Let me explain why. Alpha is generated by business disruption and market volatility. The pace of change is accelerating in the world. We see that all the time. There's geopolitical realignments happening, as well as political shifts that are monumental. All this is creating new markets, new industries, and new companies, and upending the old order and leaving traditional incumbents in the dust. Also, when you think of market volatility, you have a fair degree of uncertainty on the incoming economic agenda, the trade outlook, fiscal policy, and of course inflation, which has been with us for a couple of years, the uncertainty. And this in turn causes interest rate volatility, which in turn drives factor volatility, which in turn impacts equity prices with far greater frequency and severity. This is a fertile ground for innovation-based stock picking for somebody who has the right approach and the right process, which we do. 

Elana Margulies-Snyderman: 

And Rishi, more specifically, what are some of the greatest opportunities you see in your space, and why? 

Rishi Sadarangani: 

The opportunities I see are really in what I describe as the THC sectors and let me expand on that. T for technology, H for health care, C for consumer. These are really breeding grounds for innovation and poised to append traditional markets, industries, and companies. Let's go one by one. Technology is transformational power. So, in addition to all that we've been hearing and reading and witnessing on AI and its long-term transformative impact, which I believe in and completely agree with, there are a couple of other areas that I think offer a lot of promise. One is immersive computing, which is the marriage of physical and digital interfaces, as we see in metaverse, augmented reality, virtual reality, and all of that coming together. I think that's a big area for the future. And also, the Web 3.0 area of technology, which relates to blockchain applications and a decentralized and secure internet. Second, let me talk a little bit about health care and the cutting edge of health care. Here I see transformational impacts in areas such as personalized medicine, which is about cell and gene therapy, to create tough diseases that we witness today, such as oncology, different cancers, as well as rare diseases. Also, the impact of drugs to treat brain disorders such as Alzheimer's, Parkinson's, and addiction, and for that we have the use of GLP-1s, GLP-1 drugs. And finally, the area of AI impacting medicine in terms of both drug discovery as well as drug-first AI companies. And third, let me talk about consumer and reimagined experiences in the consumer space. And here I would refer to sectors such as beverages, where you have new and innovative beverages such as non-alcoholic beverages, healthier drinks, energy drinks. That's a great area of innovation. Robotics is an area where I see a lot of future robotics increasingly in the home and being used in more ubiquitous fashions. Third is creative tools, virtualization tools, collaboration tools for an era where we are doing more remote work, hybrid work, where travel is resurgent, in order to enable all of that. And finally, I think another area is in retail where the physical and digital experiences come together in stores of the future. So, I would say those are some of the areas, sectors, Elana, where I see great potential and the future going forward. 

Elana Margulies-Snyderman: 

Rishi, on the other hand, what are some of the greatest challenges you face, and why? 

Rishi Sadarangani: 

Market signals are getting much noisier as a result of the rise of passive investing, ETFs, index funds, algorithmic trading. And vast amounts of capital are being deployed in these strategies. And these strategies tend to follow the herd and not rely on fundamental analysis of industries, companies, securities. As a result, while these also create opportunities, they also result in situations where markets can be grossly undervalued or very heated for much longer periods of time. This is a challenge. 

Elana Margulies-Snyderman: 

Rishi, to shift gears a bit, ESG and DEI have been top of mind for the investment industry and would love to hear your thoughts on how your firm's integrating these topics. 

Rishi Sadarangani: 

So, Elana, ESG and DEI are terms that evoke a great deal of emotion in many people, in most people, but are also key to our ability to thrive as a society and as companies and as individuals. And ESG and DEI are cornerstone principles for the revolutionary innovation that I look for in my companies. Let me touch upon a couple of the factors that I think are particularly notable and important. When you think about S, the societal impact of ESG, it's about relationships that go to the fabric of all of us, the 360-degree relationships, which is very key. When you think of governance, it's about equitable governance and about fairness, transparency, and equitable representation in governance at both the individual and corporate levels. And then I'd also like to highlight the D and the I, where D stands, I believe, for diverse perspectives that are very key for creativity, innovation and progress, and inclusive voices where everybody's voices, opinions should be heard, respected, and duly given credit and acknowledged. So, I think ESG and DEI are very key for us as a society and for a future to thrive, and getting it right is very important. 

Elana Margulies-Snyderman: 

Rishi, we've covered a lot of ground today and wanted to see if you wanted to touch upon your future plans for the firm. 

Rishi Sadarangani: 

Elana, when I think about the future of R/Evolution Gate, and as I look to the future, I want to emphasize that we are not just asset managers in the traditional sense of the word. We are trusted stewards of capital and strategic navigators, relentlessly evolving to be of service and value to our clients. Nothing exemplifies this better than our tagline, “Revolution through relentless evolution," where we stay true to our mission of staying ahead of the curve to deliver positive value and exceptional difference to our clients. Our North Star is excellence. R/Evolution Gate is where innovation meets risk control, and where dynamic and disciplined execution drive excellence. That, indeed, is our North Star. Thank you very much. 

Elana Margulies-Snyderman: 

Rishi, I wanted to thank you so much for sharing your perspective with our listeners. 

Rishi Sadarangani: 

Elana, thanks for having me. It's an honor. 

Elana Margulies-Snyderman: 

And thank you for listening to the EisnerAmper podcast series. Visit eisneramper.com for more information on this and a host of other topics. And join us for our next EisnerAmper podcast when we get down to business.

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