When we think about earnings growth, it is all about who are the secular growers? And to be a great secular grower, you need to have a business that’s in favor, you have to be taking share in that business, and you have to make sure that you have a heck of a big moat around your business, so that someone’s not gonna come in and steal your business three or five years down the road.

A moat built around scale or a moat built around access to capital—those have started to evaporate. And now the new, most successful moat is what company controls the relationship with their customers. We completely agree with that, because now there’s a more direct one-to-one relationship between customers and companies, as opposed to multiple middle men, as we used to have. So those companies that have those direct relationships, we think they’re in the driver’s seat.

The most interesting thing about the past was that scale in itself was a huge moat. And in today’s world, scale is no longer that moat. There are many small companies that can have a virtual business model and go direct to the consumer with no manufacturing assets, and as a result are incredibly successful and have great returns. So I think…ideas, innovation, collecting the right talent: those are all absolutely critical today, and those are going to be the successful companies.

When we think about what makes a great business, to us, there’s a focus on ESG, or environmental, social and governance issues. We’ve always asked the question, Do we wanna be in this business, with these people? And to us, “this business” is all about environmental and social factors, and “with these people” is all about governance factors. So that’s what makes a successful business to us, and it’s getting a heck of a lot more attention today, which I think is a wonderful thing.

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.

© 2017 AllianceBernstein L.P.