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Have you heard of the Scoville scale? It is named after an American pharmacist who pioneered a method for measuring the spiciness, or heat levels, of different types of chilli peppers.

At one end, there are the milder bell peppers and poblanos: the ones that seem sensible and we know will be kind to our digestive systems. At the other end, there are the habanero peppers and Carolina Reapers: the ones that make us break a sweat. 

If we apply this same scale to the different flavours of growth investing, the Long Term Global Growth (LTGG) strategy would be at the spiciest extreme. 

After all, we often invest in transformative growth companies that thirve on dramatic change, the disruptors, rather than those that benefit from the status quo. These are businesses that drive or ride exponential adoption curves, often associated with new technologies and innovations. 

But financial orthodoxy suggests that these companies are typically the most volatile. The range of return outcomes from holding them is vast. We don’t disagree. These are the habaneros of growth investing.

So why do we believe that such transformative growth should be considered a strategic, and even a defensive, allocation in any equity portfolio? This is the case that Gemma Barkhuizen, an LTGG decision-maker, recently presented at a Baillie Gifford conference. Let’s look at her three main arguments…

1. Transformational growth for exceptional long-term returns

What is equity exposure supposed to deliver for a portfolio? Not volatility reduction. Not wealth preservation. Because other asset classes are inherently better suited to achieve those goals. Instead? Capital growth. This is what this asset class is well suited to deliver, thanks to the favourable asymmetric payoff profiles that come from investing in stocks.

Therefore, if an asset allocator is optimising their equity exposure for capital growth, then it is worth remembering that the most exceptional payoffs tend to come from transformative growth companies. For reference, the LTGG portfolio has delivered over twice the MSCI ACWI return, in cumulative terms, since the strategy’s inception in 2004, net of fees.

Twice the market since 2004

Cumulative net returns: LTGG vs MSCI ACWI since inception (29/02/2004) to 30 September 2025.

Source: Revolution, MSCI. Net of fees. USD. The LTGG strategy is more concentrated than the MSCI ACWI Index.

Why is this so? Companies whose business models hinge on the status quo typically present mild returns: extrapolation of current trends is easy, making stasis quite simple to model and to price. 

In contrast, change and disruption are inherently difficult to model and therefore susceptible to mispricing. It is in the mispricing that our opportunity resides. Transformation can be highly lucrative to companies and investors who can successfully capitalise on it.

By the same token, failure to own such companies can make outperformance extremely challenging. The so-called ‘Magnificent 7’ drove about 40 per cent of the US market return over the past five years and around a third of the global market return over the same period.

While much market commentary characterises this dominance as an anomaly, it’s not unusual for companies on the right side of technological transformation to create and capture disproportionate wealth.

Let’s turn to a very live example of transformation: AI.

While AI has already powered NVIDIA past the $4tn market cap threshold this year (at one point exceeding $5tn), so far most of the wealth creation from AI has been mainly confined to the infrastructure layer – notably the building of data centres.

The striking thing about AI, however, is that it is a general-purpose technology. There is no single economic activity that intelligence does not touch.

Historical lessons from other general-purpose technologies suggest that there is still significant value to be created at the application layer in business models and products that could never have existed without AI.

Consider, for example, that while the shift from steam power to electricity resulted in the likes of General Electric (a company giant of its time), the shift also enabled assembly line production, which was essential to the creation of the modern automotive industry.

Similarly, while the internet led to the meteoric rise of infrastructure companies in the early years of its deployment, it also powered applications such as ecommerce and digital advertising, which created multiple trillion dollars of market capitalisation. 

Sectors ripe for transformative growth

Estimated global revenue by sector, highlighting the largest opportunity sets for transformative growth.

For AI, we believe we’re still in the earliest innings of this application layer opportunity. And it stands to disrupt larger markets than retail and advertising. After all, knowledge work accounts for about $25tn of annual spend – and that’s before we even consider the physical applications of AI in autonomous driving, logistics and manufacturing. 

2. Transformational growth for a defensive allocation 

Change is structurally accelerating. Ignore it at your peril.

Consider, for instance, that it took over 70 years for the telephone to be adopted by 50 million users back in the 19th century. A couple of decades later, radio achieved the same feat in around half that time. By the early 20th century, television again roughly halved that timeframe. And so on.

By the time of Facebook in 2004, it took just three to four years. Most recently, ChatGPT took only two months. In other words, generative AI crossed the same adoption threshold more than 400x faster than the telephone – supercharged by the internet, mobile devices and global connectivity. 

From 71 years to 2 months: the acceleration of adoption

Illustrating how adoption of major technologies has accelerated from multi-decade journeys to just two months for generative AI.

Sources: Visual Capitalist, UBS Group.

Suppose one were to believe that this structural acceleration in transformational change continues in the decades ahead. In that case, this begs the question: how much of an asset allocator’s portfolio would benefit from this trend?

The answer is often ‘not much’. This is because most companies benefit from the status quo. They flourish when conditions are stable. Their valuations tend to assume that stability. This seems surprisingly dangerous given the pace of change.

Transformative growth exposure can therefore play a role in derisking and future-proofing a portfolio.

3. Transformational growth and stock picking

Why should transformative growth investing appeal as an active equity strategy? Why not just accept that the increasingly fast pace of change is simply a feature of the market landscape that will naturally, and indeed cheaply, be reflected in the market index? 

The response to this question boils down to this: yes, the index guarantees exposure to most of the beneficiaries of transformational growth, but it also guarantees exposure to the casualties. This matters because of the distribution of returns in equities, where a small percentage of companies generate almost all of the wealth. Exposure to the casualties is a meaningful drag on returns. 

Moreover, the cap-weighted indices only provide meaningful exposure to the large transformational growth winners after much of their exceptional growth has already occurred. 

We’ve already begun to witness a changing of the guard whereby several LTGG holdings are comfortably outperforming most of the Magnificent 7 companies in terms of both operational growth and share price performance. 

These range from some of the early AI application companies, such as AppLovin in digital advertising and Horizon Robotics in autonomous driving, to warehouse automation company Symbotic, gaming company Roblox, next-generation aviation company Joby, and space economy disruptor Rocket Lab.

Yet, despite their growth and share price performance, these are still negligible positions in any index, where those indices remain dominated by companies whose performance now lags this new guard. 

All of this underlines the importance of stock picking. The task is to identify outliers early, hold them in size, and hold them over time. This is what then really moves the dial on portfolio returns. And this is exactly what we seek to do in the LTGG Strategy.

Contrast that with the ingrained benchmark-hugging, tracking error fixation, and career risk associated with short-term volatility. These factors tend to deter many traditional fund managers from buying transformative growth companies until their success has already become consensus. 

Yes, exposure to transformative growth companies likely implies more short-term volatility. But neglecting them risks chronic underperformance. Being long-term active growth investors, the latter is what would worry us above all else.

The spice of life

It is worth recalling that the same spicy compounds that make chilli peppers so hot actually evolved as a defence mechanism to protect plants from being eaten. Those same spicy compounds are the active ingredients we use in pepper spray for self-defence. 

By the same token, transformative growth is exciting and the source of extreme payoffs, but arguably also a matter of portfolio protection and survival. 

Annual past performance to 30 September each year (%)

Annualised returns to 30 September 2025 (%)

Source: Revolution, MSCI. USD. Returns have been calculated by reducing the gross return by the highest annual management fee for the composite. LTGG composite is more concentrated than MSCI ACWI Index.

Past performance is not a guide to future returns.

Legal notice: MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indexes or any securities or financial products. This report is not approved, endorsed, reviewed or produced by MSCI. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

Risk factors and important information

The views expressed should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect opinion and should not be taken as statements of fact nor should any reliance be placed on them when making investment decisions.

This communication was produced and approved in December 2025 and has not been updated subsequently. It represents views held at the time of writing and may not reflect current thinking.

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