Al Gore (Trades, Portfolio) is better known as a former U.S. vice president, but he now helps run Generation Investment Management, which currently manages more than $22 billion. While the firm focuses purely on “sustainable” investments, that hasn’t prevented it from beating the majority of hedge funds over the last 15 years. At one point, its 10-year track record was outpacing the S&P 500 (SPY) by nearly 500 basis points annually.
In May, it closed nearly $1 billion in financing for its new fund, the Generational Sustainable Futures Fund, which will focus on high-growth tech firms with commercial traction. These companies could represent the firm’s most lucrative opportunity yet.
“We believe that we are in the early stages of a technologically-led sustainability revolution, which has the scale of the industrial revolution, and the pace of the digital revolution,” commented Al Gore (Trades, Portfolio).
While the fund will take some time to deploy its capital, we can already get a sense at where Generation Investment Management is betting by looking at its most concentrated holdings. This does not mean their biggest holdings by percentage, but rather the companies that they own the most of. It’s not always feasible to own more than 10% or 15% of a single company, especially if volumes are low. By analyzing which stocks the firm owns the most of, we can get an idea of which opportunities they wish they could buy more of — if they could.
Jones Lang LaSalle Inc (JLL, Financial)
Jones Lang LaSalle comprises 4.1% of Generation’s portfolio, but the firm owns more than 14% of the shares outstanding. Generation’s stake is worth nearly $600 million, yet only $40 million worth of shares trade hands each day, so it’s understandable why the firm isn’t able to boost its position even further. Despite the 4.1% position, this is likely a very high conviction pick.
Jones Lang LaSalle is a U.S.-based commercial real estate services firm. It is the second-largest in the world behind CBRE Group (CBRE, Financial). The stock trades at just 11.3 times forward earnings. That seems reasonable considering analysts forecast just 3% long-term annual earnings per share growth. Still, this looks like a reasonably priced stock with a large moat.
Acuity Brands Inc. (AYI, Financial)
Acuity Brands comprises 3.2% of Generation’s portfolio, but the firms owns roughly 8% of the entire company. Generation’s stake is worth around $460 million, but only $40 million worth of shares gets traded each day. Yet again, this is likely a high conviction pick despite the low-single-digit portfolio weighting.
Acuity is a lighting and building management firm. It’s based in the U.S. but has operations throughout North America, Europe and Asia. The stock trades at just 12.9 times forward earnings yet consensus estimates call for a 10.67% long-term annual earnings per share growth rate. This could be a bargain if growth estimates become reality.
Nutanix is a new holding for Generation, currently comprising 2.6% of the portfolio. The stock is down 42% on the year, so don’t be surprised if the firm adds to its position if the valuation continues to fall. Generation now owns 7.7% of the company. That’s a $375 million position, nearly 10 times the daily trading volume. Yet again, I’d consider this a high conviction pick.
Nutanix is a cloud computing software company that sells “hyper-converged infrastructure appliances and software-defined storage.” Over the last five years, revenues have grown by an astounding 57% per year. Year-over-year, however, sales growth has slowed to just 7%. That’s caused a steep sell-off in shares.
Part of the issue seems to be a misunderstood pivot to subscription and SaaS revenue streams. That’s something other software companies like Talend (TLND, Financial) have struggled with. Revenue growth slows as customers are transitioned to the cloud, but long-term retention and profitability may rise. Generation seems to be capitalizing on the temporary confusion. Shares trade at 3.3 times forward sales, and just 2.6 times 2021 sales.
