Pursuing the power of recurring revenue

The investment landscape highlights the enduring and multi-year trends within the growth universe, emphasizing the importance of identifying growth themes and the businesses that stand to benefit. A key focus is on companies with above-market revenue and free-cash-flow growth, prioritizing revenue visibility over short-term growth spurts. This approach is encapsulated in the "subscriptions and consumables" theme, which emphasizes recurring revenue models.

Businesses that leverage subscription services, such as streaming platforms and productivity software, offer better revenue predictability due to their recurring nature. Similarly, consumables, which require constant repurchase, provide consistent revenue streams. Examples include prescription services and disposable medical supplies. The demand for subscriptions, which surged during the pandemic, remains strong, with the subscription economy projected to grow significantly, reaching $996 billion by 2028.

In the healthcare sector, companies selling single-use consumables tied to essential services, like robotic surgical systems, are poised for growth due to recurring demand. These businesses benefit from the expansion of robotic surgery and non-discretionary medical visits, offering stable revenue opportunities. The subscription model's stability is underscored by its historical growth, with subscription-based companies outpacing S&P 500 growth significantly over the past decade.

The focus on secular trends and multiyear outlooks ensures that investment themes remain relevant, though new themes are continually evaluated as market dynamics evolve. The strategy is to identify durable growth companies that maintain competitive performance across economic cycles, rather than timing short-term market movements.