SPENCE Asset Management

Pockets of Optimism January 2012

Underneath the media chronicles of political strife, there are plenty of exciting developments in the business world, some of which add up to wonderful investment opportunities. As we approach the dawn of the New Year, let’s take a look at what is good about the investment prospects for 2012.

Technology is a logical space in this day and age to seek investment success but before we paint with a broad brush, it is important to remember that technological advancements do not always lead to great investment performance. Sometimes changes brought on by technology create widespread economic displacement. Economist Joseph Schumpeter called the process “Creative Destruction.” Staying out of the way of destructive economic forces is wise- technology related or otherwise.

Yet, there are pockets of the technology industry that offer excellent investment possibilities. For example, there is no question that owning proven patents on products that produce royalty streams from the licensing of awesome new products has tremendous potential, particularly in the digital world of the 21st century.

And because intellectual property is protected in this great country of ours, one of the greatest characteristics of our digital world is the acceleration of product development. New product design has moved from manually produced drafts, followed by the time consuming process of building prototypes, to today’s age of virtual simulation. The adoption of state-of-the art engineering simulation products and services is a necessity for a competitive product development process.

Likewise the availability and accessibility of data has accelerated. In the digital world, having unfettered access to real time, up-to-the-minute data, is an absolute necessity. Any company daring to attempt to operate under the false assumptions that comes with relying on out of date data, puts themselves at a severe competitive disadvantage that is unsustainable. High value data aggregators with business structures that provide constantly updated real-time databases for businesses, hold powerful franchises in the ever-evolving information age.

Speaking of powerful franchises, in an electronic world, where the cost of handling cash, checks, and other paper-based transactions is rising, companies that can provide safe, secure, and low costs settlements of transactions electronically will also have a bright future.

Despite the rapid evolution of the technology industry and the effects of the digital age on product development, the movement of money and competition, some of the basics of our lives haven’t really changed much at all. Human beings still require the essentials each day. We require primary forms of sustenance- we cannot eat online. We cannot get dressed online, shower online, or take our medicines online. Despite all of the amazing changes the digital age has brought to every day existence, the need for the physical delivery of many products and services will never change even though the forces of technology have had an almost invisible affect on the delivery of these products and services.

Similarly, behind the scenes, the delivery of healthcare services has been changing. As life-saving drugs come off patent pricing protection, there are opportunities available to take advantage of generic competition. Businesses with advanced systems in place that can deliver cost savings on medicines are well positioned for the future. And businesses that provide health care providers with products or data that enable them to deliver cost savings on services that will always be provided face-to-face, will continue to offer exciting prospects as well.

Another basic element to human existence, despite the advance of the digital age, is our need for fresh produce. Growing seasons, climate and labor still play essential roles in agriculture. Thus, the need for highly productive relationships between transporters and distributors hasn’t changed. What has changed is the technology used to insure timely transportation and delivery of fresh fruits and vegetables. Companies in the best position to handle the logistics involved in providing timely transportation and delivery to meet global demand will continue to have a bright future.

Looking toward the future and as we roar headlong into 2012, it is important to have a good handle on the trends of change, as well as the constants in everyday life in order to achieve investment success. No single industry offers guaranteed superior returns but many industries offer pockets of strength, pockets of great potential…pockets of optimism.

Happy New Year!

Jim Spence, Eric Walton

The information contained herein is for informational purposes only without regard to any particular user’s investment objectives, risk tolerances or financial situation and does not constitute investment advice, nor should it be considered a solicitation or offering to investors. To determine if investment in a Separately Managed Account with Spence Asset Management is an appropriate investment for you please call 1.800.230.1840.

Investment Advisory Services are offered through Spence Asset Management, a federally registered Investment Advisor. Investment Advisory Services offered through IAR’s of Spence Asset Management, a Registered Investment Advisor to all residents of the United States.

The views expressed here are those of Spence Asset Management and are subject to change with market conditions. The information contained in this newsletter is derived from sources believed to be accurate. You should discuss any legal, tax, or financial matters with the appropriate professional. Neither the information presented nor any opinion expressed constitutes investment advice or a solicitation for the purchase or sale of any security. Market forecasts cannot be guaranteed. Past performance does not guarantee future results.