TWST: Please start with an overview of your coverage universe.
Dr. Kant: I cover a unique group called advanced materials, which I started back in 2006. While investors have traditionally looked at materials as a commodity, we focus on a different breed of materials that are game changers and enablers of leading-edge technology. We see high growth for advanced materials, not only from their existing applications, but more importantly from their increasing adoption in various new applications. Given the enabling nature of their materials, advanced materials companies enjoy better margins than companies involved with traditional materials, such as aluminum, copper and steel. We try to find leading materials companies that are enabling improved efficiency and performance in high long-term growth markets, such as semiconductors, lasers, light-emitting diodes (LEDs), solar, wind, electric vehicles and aerospace. Obviously, while all the companies within our coverage universe have materials-related intellectual property, their end-market exposure is very diverse.
I will present a few examples for better understanding of advanced materials. As semiconductor chips become smaller, faster and cheaper, several new materials are needed to continue to push the technology to the next level. As wind turbines become larger and larger, light-weight carbon-fiber composites are being used increasingly to keep these turbines from becoming too heavy to rotate when the wind starts to blow. While we can continue to cite several other examples, another very relevant one comes from the commercial aerospace industry, where new generation of planes such as the A380, B787 and A350 are starting to use significantly higher amounts of titanium and composite materials to improve fuel efficiency and maintenance costs.
We recognize the long-term growth in demand for composites and titanium as a great investment opportunity. Our key investment idea levered to composites is Hexcel Corp (HXL), while we have two investment ideas - RTI International Metals, Inc. (RTI), and Titanium Metals Corporation (TIE) - levered to titanium. Traditionally, these companies are categorized in diverse sectors, such as industrials, aerospace, and metals and mining by other Wall Street firms. It's the uniqueness of our advanced materials group that allows us to put these names within one basket, as the end-market drivers for each company are very similar.
TWST: Is aerospace and defense the primary customer base for those three companies?
