- Garvin Jabusch told Business Insider how he chooses companies for the tech and renewable energy-focused Shelton Green Alpha fund, the second-best performer among large-cap mutual funds in 2019.
- Jabusch says he’s succeeded investing in innovators with strong intellectual property positions and that are benefiting from long-lived economic trends.
- He says he combines that approach with a value and fundamental-based philosophy that emphasizes revenue growth and cash flows.
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Investing in the technologies of the future involves keeping track of things that aren’t easily measured in numbers.
But Garvin Jabusch managed to stay on top of them in 2019, and then some. He co-manages the Shelton Green Alpha Fund, which invests in innovative technologies and beat 97% of its peers. With a 43.7% return, it ranks number two among large cap US mutual funds for the year, according to Kiplinger.
While the fund had endured a couple of rough years before that, Jabusch says his strategy hasn’t changed since its inception in 2013. He says sentiment shifted in his favor while he focused on the trends that matter most for his investments, a combination of company performance and focus on new technologies.
“We want to find that the firms with the best fundamentals. And then we want the ones that own the most IP around the best innovation,” he told Business Insider in an exclusive interview. “We want to think about what is going to grow into not just the next quarter or even year, but over the next half-decade, decade, even couple of decades.”
Intellectual property is key to that approach. Jabusch says he wants to find the companies that have developed new technologies that their competitors will have to build on, giving them an advantage as well as long-lived sources of revenue from licensing.
Here’s an example of how those threads can come together: One of the Green Alpha fund’s biggest investments is in First Solar. Jabusch says the company benefits from the plunging cost of solar energy, an economic trend that’s giving it a crucial advantage over fossil fuels. Meanwhile, in America it has a near-monopoly on the type of solar panel that’s cheapest to make.
“That’s an example of the intersection of a great new technology that’s more productive than its predecessor and then seeking the owners of the smartest IP,” he said. “The overall approach is to think a little bit more about economics and a little bit less about finance.”
Other major areas of focus include wind energy, CRISPR gene therapies, and chipmakers with an eye on developing industries like artificial intelligence and robotics. He also has positions in Tesla and Alphabet. Its largest current positions are in Danish wind turbine company Vestas, chipmaker Applied Materials, First Solar, solar and wind company TerraForm Power, and tech consulting giant IBM.
In spite of his futuristic focus, Jabusch does consider himself a fundamental investor. He says he looks for companies that are growing and betting on themselves, and ignores per-share numbers entirely.
“I want to see expanding revenue. I want to see proven ability to expand margins. I want to see increasing free cash flows and I want to see the firm doubling down on its innovation,” he said.
He adds that he uses a modified version of Graham-Dodd valuation to asses them. He combines a look at companies’ discounted cash flow and the value of its assets with an assessment of the economic trends supporting their businesses.
“With the world changing so fast, it’s hard to do value investing without marrying it to macro even though that would be heresy to a traditional value person,” he said. “We think you’ve got to be looking ahead, and you have to marry macro to your overall approach because without that, you don’t have a very informed view about what kind of growth you can expect.”