We are bullish on growth investing
February 8, 2019
Last year was quite a roller coaster for equities. The year began with the market showing great optimism with regard to tax reform and a strong economy, and it ended with major macroeconomic concerns pressuring the tape. Rate increases, the unwinding of quantitative easing, trade wars and a government shutdown have all weighed on sentiment. We believe that each of these issues will likely be resolved or mitigated as we move through 2019. When it comes to the US Federal Reserve rate increases, the most important of these issues, we have already seen a more dovish approach.
TV pundits will continue to talk about these issues. We encourage you to ignore them and focus on the disruptive trends that are transforming our economy. We do not believe we are on the cusp of recession or another 2008 scenario in which massive systematic risk unravels economies around the world. More likely, the end of 2018 was a harsh correction that will likely be resolved with the US equity indices reaching higher highs sometime in 2019. Even if we are wrong, I would expect any bear market or recession to be mild, similar to the one we had in 1990-91, and not a reason for long-term investors to adjust course.
Why do we feel this way? Because, in our view, the secular trends in our economy have reached escape velocity. Foundational changes as a result of innovation and technology are happening to areas like banking, food, content, transportation, and healthcare. You see, these disruptive forces are creating better, faster, cheaper ways of doing things and have thus started the creative destruction process that makes capitalism so great. Let me give a few examples.
Virtual healthcare. In the future, much of healthcare will be delivered virtually because of the savings, efficiency and potentially improved care this model offers. Instead of bringing your kid to the doctor’s office with poison ivy you will simply video call the doctor for a diagnosis and prescription. In this example, the doctor makes more money because he or she doesn’t need a high-priced location and can see more patients. The insurance company makes more money because it doesn’t have to reimburse the doctors as much. And you, the patient, benefit from the savings of time and the efficiency provided. This service is already available, and the uptake is rapid based on earnings reporting from companies providing these services (Source: Bloomberg).
Another example is the continuous monitoring of vital functions such as your heartbeat or insulin levels. Instead of having your condition checked only at the doctor’s office, this constant monitoring can improve the accuracy of your treatment.
Throughout the healthcare sector, technologies like these are showing the promise to transform the industry, at an increasing rate.
Mobile banking and digital currency. My mom still goes to the bank at an expensive brick-and-mortar retail location and deposits checks with the teller. My son takes pictures of checks to deposit them, and uses Venmo or PayPal® when he needs to transfer assets. Digital currencies are a more efficient way to move money around, thereby saving time and money. Mobile and digital are becoming the future, and the implications for society and businesses are enormous.
Higher quality food. People are eating better and healthier these days as more value a higher quality food experience. You can see it in your grocery aisle, where organic foods are growing 10% a year, a huge uptick for the grocery industry. Kale and avocado sales continue to rise, as many consumers become more discerning about selecting healthy, high-quality foods. (Source: Organics Trade Association, Statista)
The demand for quality can also be seen on the street, where in any urban setting you see long lines at places like Dig Inn, Shake Shack, Chipotle, or Chopt, as consumers demand higher-quality fast-casual dining experiences.
We expect these trends to continue, as it’s a better way to live.
Content. Whether it’s social networking, streaming media or interactive gaming, new ways of social interaction and changes in viewership habits are in secular growth phases. Take streaming media. There are still 150 million cable subscribers in the US. (Source: US Federal Communications Commission) You can get all the same content with Hulu, Netflix and Amazon Prime offerings for about a $100 less per month. That’s well over a $1,000 a year that people can save. That’s a better and cheaper way to manage your content and we expect to see a continued and steady migration to new ways of doing things in this area.
Think of everything we have just reviewed. All our Healthcare. All our Banking. All our Food and Content. These are huge markets undergoing massive change that isn’t going to stop because of short-term macroeconomic influences. An incredible amount of value has been and will continue to be created by those companies that are leading the charge in these areas. So while I know there will be bumps along the way, we are holding tight to our constructive outlook on equities and the opportunities they will provide in the year ahead.
As of Dec. 31, 2018, certain stocks discussed were held in portfolios managed by the team as follows (in amounts up to): Chipotle, Small/Mid-Cap Growth Equity, 3.0% and Mid-Cap Growth Equity, 3.4%; Shake Shack, Small-Cap Growth Equity, 3.7%, Small/Mid-Cap Growth Equity, 3.6%, and Mid-Cap Growth Equity, 2.6%. Amounts shown are for informational purposes only, and subject to change at any time. They are not a recommendation to buy, sell, or hold any security.
The views expressed represent the Manager's assessment of the market environment as of February 2019, and should not be considered a recommendation to buy, hold, or sell any security, and should not be relied on as research or investment advice. Views are subject to change without notice and may not reflect the Manager's views.
This content is for informational and/or educational purposes only and is not an endorsement of any app, service, or publicly traded company.
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