A Primer on Change-Driven

THEMATIC INVESTING

Presentation by
McAlinden Research Partners

McAlinden Research Partners | 60 E 42nd Street, Suite 2223| New York, New York 10165 | Tel: (212) 231-8701
MCALINDEN RESEARCH PARTNERS

Change-driven thematic
investing captures alpha
Change-Driven Thematic Investing
opportunities that arise from
sudden shifts, discontinuities,
and other disruptions to the
status quo that usher in new
innovation.
Efficient Market Theory argues that market prices reflect all available information
and adjust incrementally to routine data flows.

In contrast to incremental changes within an ongoing equilibrium, disruptive change

marks a radical break to the equilibrium itself.

Research from behavioral economics has identified a natural human tendency to

resist new knowledge that contradicts the status quo.

Investment opportunities in financial markets arise when there is a lag between a

disruption to the status quo and the market’s adjustment to the new equilibrium.

Page 2 MCALINDEN RESEARCH PARTNERS

 MCALINDEN RESEARCH PARTNERS

The MRP Formula

Disruptive Change
Disruptive Change
+
Status Quo Bias Reality
= Market Reaction
Thematic
Opportunities
Value

Disruptive change can be

caused by:
•Technological innovations
•Business-cycle turning points
•Government regulations
•Elections

•New business models
•Natural events

Time
These changes can arise
gradually as tipping points or
suddenly when gales of
 When in
Schumpeterian creative equilibrium, markets
destruction rip through are continuously
economies. oscillating gently
around an established
equilibrium

Page 3 MCALINDEN RESEARCH PARTNERS

 MCALINDEN RESEARCH PARTNERS

The MRP Formula

Disruptive Change
Disruptive Change
+
Status Quo Bias Reality
= Market Reaction
Thematic
Opportunities
Value

Disruptive change can be

caused by:
•Technological innovations
•Business-cycle turning points
•Government regulations
•Elections


•New business models
•Natural events

These changes can arise
gradually as tipping points or
suddenly when gales of
Schumpeterian creative
destruction rip through
economies.
Time
 Disruptive change
 When in
equilibrium, markets alters the status quo
are continuously
oscillating gently
around an established
equilibrium

Page 4 MCALINDEN RESEARCH PARTNERS

 MCALINDEN RESEARCH PARTNERS

The MRP Formula

Disruptive Change
Disruptive Change
+
Status Quo Bias Reality
= Market Reaction
Thematic
Opportunities
Value

Disruptive change can be 

caused by:
•Technological innovations
•Business-cycle turning points
•Government regulations
•Elections


•New business models
•Natural events

These changes can arise
gradually as tipping points or
suddenly when gales of
Schumpeterian creative
destruction rip through
economies.
Time
 Disruptive change  The equilibrium is
 When in
equilibrium, markets alters the status quo shifted, disrupting
are continuously assumptions that are
oscillating gently embedded in security
around an established prices
equilibrium

Page 5 MCALINDEN RESEARCH PARTNERS

 MCALINDEN RESEARCH PARTNERS

The MRP Formula

Disruptive Change
Disruptive Change
+
Status Quo Bias Reality
= Market Reaction
Thematic
Opportunities


Value

Disruptive change can be 

caused by:
•Technological innovations
•Business-cycle turning points
•Government regulations
•Elections


•New business models
•Natural events

These changes can arise
gradually as tipping points or
suddenly when gales of
Schumpeterian creative
destruction rip through
economies.
Time
 Disruptive change  The equilibrium is  Status quo bias
 When in
equilibrium, markets alters the status quo shifted, disrupting creates alpha
are continuously assumptions that are opportunities when
oscillating gently embedded in security markets adjust
around an established prices incrementally to
equilibrium disruptive change

Page 6 MCALINDEN RESEARCH PARTNERS

 MCALINDEN RESEARCH PARTNERS

The MRP Formula

Disruptive Change
Disruptive Change
+
Status Quo Bias Reality
= Market Reaction
Thematic
Opportunities

Sweet Spot

Value

Disruptive change can be 

caused by:
•Technological innovations
•Business-cycle turning points
•Government regulations
•Elections


•New business models
•Natural events

These changes can arise
gradually as tipping points or
suddenly when gales of
Schumpeterian creative
destruction rip through
economies.
Time
 Disruptive change  The equilibrium is  Status quo bias
 When in
equilibrium, markets alters the status quo shifted, disrupting creates alpha
are continuously assumptions that are opportunities when
oscillating gently embedded in security markets adjust
around an established prices incrementally to
equilibrium disruptive change

Page 7 MCALINDEN RESEARCH PARTNERS

 MCALINDEN RESEARCH PARTNERS

The MRP Formula

Disruptive Change
Disruptive Change
+
Status Quo Bias Reality 
= Market Reaction
Thematic
Opportunities

Sweet Spot

Value

Disruptive change can be 

caused by:
•Technological innovations
•Business-cycle turning points
•Government regulations
•Elections


•New business models
•Natural events

These changes can arise
gradually as tipping points or
suddenly when gales of
Schumpeterian creative
destruction rip through
economies.
Time
 Disruptive change  The equilibrium is  Status quo bias  Markets can
 When in
equilibrium, markets alters the status quo shifted, disrupting creates alpha overreact before
are continuously assumptions that are opportunities when eventually settling
oscillating gently embedded in security markets adjust into the new
around an established prices incrementally to equilibrium
equilibrium disruptive change

Page 8 MCALINDEN RESEARCH PARTNERS

 MCALINDEN RESEARCH PARTNERS

The MRP Formula

Example #1: US Health Care Providers
Disruptive Change Status Quo Ante
+
Status Quo Bias Rising share of Americans
=
without health insurance
Thematic
Opportunities

Disruptive change can be

caused by:
•Technological innovations
•Business-cycle turning points
•Government regulations
•Elections
•New business models
•Natural events

These changes can arise

gradually as tipping points or
suddenly when gales of
Schumpeterian creative
destruction rip through
economies.

Gallup-Healthways Well-Being Index, retrieved 15 Apr 15 from http://www.gallup.com/poll/182348/uninsured-rate-dips-first-quarter.aspx

Page 9 MCALINDEN RESEARCH PARTNERS

 MCALINDEN RESEARCH PARTNERS

The MRP Formula

Example #1: US Health Care Providers
Disruptive Change Status Quo Ante Discontinuity
+
Status Quo Bias Rising share of Americans Passage of ACA sets stage
=
without health insurance for drop in uninsured rate
Thematic
Opportunities

Disruptive change can be

caused by:
•Technological innovations
•Business-cycle turning points
•Government regulations
•Elections
•New business models
•Natural events

These changes can arise

gradually as tipping points or
suddenly when gales of
Schumpeterian creative
destruction rip through
economies.

Gallup-Healthways Well-Being Index, retrieved 15 Apr 15 from http://www.gallup.com/poll/182348/uninsured-rate-dips-first-quarter.aspx

Page 10 MCALINDEN RESEARCH PARTNERS

 MCALINDEN RESEARCH PARTNERS

The MRP Formula

Example #1: US Health Care Providers
Disruptive Change Status Quo Ante Discontinuity Market Reaction
+
Status Quo Bias Rising share of Americans Passage of ACA sets stage Health Care Provider
=
without health insurance for drop in uninsured rate stocks rally
Thematic
Opportunities

Disruptive change can be

caused by:
•Technological innovations S&P 500 Health Care Providers & Services
•Business-cycle turning points
Uninsured Rate Peaks
•Government regulations
•Elections 700
•New business models
•Natural events 600

500
These changes can arise
gradually as tipping points or 400
suddenly when gales of
300
Schumpeterian creative
destruction rip through 200
economies.
100

Gallup-Healthways Well-Being Index, retrieved 15 Apr 15 from http://www.gallup.com/poll/182348/uninsured-rate-dips-first-quarter.aspx

Page 11 MCALINDEN RESEARCH PARTNERS

 MCALINDEN RESEARCH PARTNERS

The MRP Formula

Example #2: Abe Elected in Japan
Disruptive Change Status Quo Ante
+
Status Quo Bias Japan mired in
=
deflationary quagmire
Thematic
Opportunities with overvalued currency

Disruptive change can be

caused by:
•Technological innovations
•Business-cycle turning points
•Government regulations
•Elections
•New business models
•Natural events

These changes can arise

gradually as tipping points or
suddenly when gales of
Schumpeterian creative
destruction rip through
economies.

Page 12 MCALINDEN RESEARCH PARTNERS

 MCALINDEN RESEARCH PARTNERS

The MRP Formula

Example #2: Abe Elected in Japan
Disruptive Change Status Quo Ante Discontinuity
+
Status Quo Bias Japan mired in Shinzo Abe elected with
=
deflationary quagmire reform agenda, including
Thematic
Opportunities with overvalued currency massive monetary easing

Disruptive change can be

caused by:
•Technological innovations
•Business-cycle turning points
•Government regulations
•Elections
•New business models
•Natural events

These changes can arise

gradually as tipping points or
suddenly when gales of
Schumpeterian creative
destruction rip through
economies.

Page 13 MCALINDEN RESEARCH PARTNERS

 MCALINDEN RESEARCH PARTNERS

The MRP Formula

Example #2: Abe Elected in Japan
Disruptive Change Status Quo Ante Discontinuity Market Reaction
+
Status Quo Bias Japan mired in Shinzo Abe elected with Yen sells off sharply
=
deflationary quagmire reform agenda, including
Thematic
Opportunities with overvalued currency massive monetary easing

Disruptive change can be

caused by:
•Technological innovations
•Business-cycle turning points
•Government regulations
•Elections
•New business models
•Natural events

These changes can arise

gradually as tipping points or
suddenly when gales of
Schumpeterian creative
destruction rip through
economies.

Page 14 MCALINDEN RESEARCH PARTNERS

 MCALINDEN RESEARCH PARTNERS

The MRP Formula

Example #2: Abe Elected in Japan
Disruptive Change Status Quo Ante Discontinuity Market Reaction
+
Status Quo Bias Japan mired in Shinzo Abe elected with Yen sells off sharply
=
deflationary quagmire reform agenda, including &
Thematic
Opportunities with overvalued currency massive monetary easing Stocks rally smartly

Disruptive change can be

caused by:
•Technological innovations
•Business-cycle turning points
•Government regulations
•Elections
•New business models
•Natural events

These changes can arise

gradually as tipping points or
suddenly when gales of
Schumpeterian creative
destruction rip through
economies.

Page 15 MCALINDEN RESEARCH PARTNERS

 MCALINDEN RESEARCH PARTNERS

The MRP Formula

Example # 3: US Household Formation
Disruptive Change Status Quo Ante
+
Status Quo Bias Housing recovery
=
stalled
Thematic
Opportunities

Disruptive change can be

caused by:
•Technological innovations
•Business-cycle turning points
•Government regulations
•Elections
•New business models
•Natural events

These changes can arise

gradually as tipping points or
suddenly when gales of
Schumpeterian creative
destruction rip through
economies.

Page 16 MCALINDEN RESEARCH PARTNERS

 MCALINDEN RESEARCH PARTNERS

The MRP Formula

Example # 3: US Household Formation
Disruptive Change Status Quo Ante Discontinuity
+
Status Quo Bias Housing recovery US household
=
stalled formations surge
Thematic
Opportunities

Disruptive change can be

caused by:
•Technological innovations
•Business-cycle turning points
•Government regulations
•Elections
•New business models
•Natural events

These changes can arise

gradually as tipping points or
suddenly when gales of
Schumpeterian creative
destruction rip through
economies.

Page 17 MCALINDEN RESEARCH PARTNERS

 MCALINDEN RESEARCH PARTNERS

The MRP Formula

Example # 3: US Household Formation
Disruptive Change Status Quo Ante Discontinuity Market Reaction
+
Status Quo Bias Housing recovery US household Home Furnishing
=
stalled formations surge stocks rally
Thematic
Opportunities

Disruptive change can be US Household Formations (1,000s)

caused by: Household Formations Surge
•Technological innovations S&P 1500 Home Furnishings Idx
•Business-cycle turning points 2,500 375
•Government regulations
•Elections 2,000 350
•New business models
•Natural events 325
1,500
300
These changes can arise 1,000
gradually as tipping points or 275
suddenly when gales of 500
Schumpeterian creative 250
destruction rip through 0 225
economies.
-500 200
Jul-13 Jan-14 Jul-14 Jan-15 Jul-15

Page 18 MCALINDEN RESEARCH PARTNERS

 MCALINDEN RESEARCH PARTNERS
Research Team: Mcalinden Research Partners is an independent
investment strategy research firm focused on identifying change-driven thematic
alpha generation opportunities.
MRP’s team of industry
professionals has extensive
research and operational
experience and is led by a
seasoned veteran.
Page 19
Joseph J. McAlinden, CFA
• Chairman and Founder
• Over 50 years of investment and research experience
• Formerly CIO & Global Strategist at Morgan Stanley Investment Management, CIO at
Dillon Read, President & CEO at Argus Research
• Rutgers University – B.A. in Economics
Rob Davis: Sales Davis Roberts: Business Development
• 40+ years of investment & research • 20+ years of investment & research
experience experience
• Formerly at Concept Capital, Montgomery • Managing Partner at IRP. Formerly at
PB, Morgan Stanley, Dillon Read, Lombard Street Research, BBSP, BCA
Oppenheimer Research, Merryl Lynch
• SUNY New Paltz – B.A. in Education • University of Oxford – Master of Philosophy
Nelly Nyambi: Research & Client Services
Lenka Houskova: Research Associate
• 15+ years of investment and research
experience • 9 months of research experience
• Formerly at PMA Investment Advisors, • Formerly at the Russian International Affairs
Altura Capital, Citigroup, Caisse de Depots Council, Embassy of the Czech Republic
et Consignations
• University of Westminister – LLM in
• Columbia University – B.A. in Economics International Law
Anna Zeng: Finance & Administration
• 10+ years of legal & operational
experience
• Formerly at Loeb & Loeb, Practising Law
Institute
• UCLA School of Law – J.D. MCALINDEN RESEARCH PARTNERS
19
MCALINDEN RESEARCH PARTNERS

Disclaimer
The information provided in this presentation (the "Report") is not to be reproduced or distributed to any other persons. This Report has been
prepared solely for informational purposes and is not an offer to buy/sell/endorse or a solicitation of an offer to buy/sell/endorse Interests or any
other security or instrument or to participate in any trading or investment strategy. No representation or warranty (express or implied) is made or can
be given with respect to the sequence, accuracy, completeness, or timeliness of the information in this Report. Unless otherwise noted, sources for
public data include Bloomberg, Trading Economics, and FRED (Federal Reserve Bank of St. Louis Economic Data). McAlinden Research publishes daily,
weekly, and other periodic reports on the economy and the markets. Catalpa Capital Advisors, LLC (CCA) is a Registered Investment Advisor which
manages client accounts. References to specific securities, asset classes and financial markets discussed herein by McAlinden Research are for
illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities. Securities
discussed in the Report may or may not be held in accounts managed by CCA and/or its associated persons, and changes in those accounts may be
made at any time without notice to its subscribers. Neither McAlinden Research nor CCA is under an obligation to inform research recipients if any
accounts managed by CCA subsequently purchase or sell securities discussed by McAlinden Research and they do not anticipate providing such
information.

Page 20 MCALINDEN RESEARCH PARTNERS

20