Investors should focus on R&D spending to identify future winners

In recent trends, investment experts have emphasized the importance of research and development (R&D) spending as a key indicator of a company's future success. Companies that allocate substantial amounts of their budgets towards R&D are often on a path toward innovation and growth, making them attractive options for potential investors. Gerrit Smit, manager of the Stonehage Fleming Global Best Ideas Equity fund, highlighted the correlation between R&D spending and share price performance, underscoring the long-term benefits that can arise from such financial commitment. Smit noted that even though not every firm that invests in R&D will be successful, a solid management strategy and attractive products are crucial for understanding a company's potential. The presence of good management and the ability to attract top engineering talent are essential factors that investors should consider when analyzing a firm's worth. For instance, Clare Pleydell-Bouverie, co-manager of the Liontrust Global Innovation fund, stressed the importance of transformation through customer experience. By becoming customers themselves, investors can gain insight into the effectiveness of a company's products and services. Such hands-on engagement has proven valuable; Pleydell-Bouverie cited Harvey AI, a company that has only been in operation for a year yet demonstrates significant benefits for its users—allowing attorneys to save time and improve efficiency through innovative software solutions. These developments suggest that potential investors should not solely rely on traditional performance metrics but also consider the qualitative aspects of a company's offering. Notable examples of companies aligned with this investment philosophy include Visma, an payroll software provider, and the international insurance group Howden. These firms exemplify the transformational potential that can arise through smart investments in technology and services. For those looking to invest wisely, paying attention to firms that exhibit these traits may lead to promising opportunities in the market. The narrative reinforces that the next successful companies, much like earlier tech giants such as Google or Amazon, may emerge from bold investments made in research and innovation today.