It appears we have reached the give-up phase for U.S. equities. Concerns about the U.S. economy, various commodities, some currencies, U.S. politics, rapid change and global strategic issues have caused investors to throw up their arms in frustration and retreat to the safety of more predictable alternatives. Now is not the time to lose heart. The presumed wisdom of market participants now is that in the current market environment, no growth is possible so why pay for it; hence, the compression in multiples, especially for growth stocks. It is exactly this type of short-term thinking that undermines long-term returns.
Despite many challenges, the global economy continues to muddle along, and global monetary policy responses are appropriate and should bear fruit eventually in terms of faster growth rates. The U.S. is furthest along in this regard and would likely be doing much better at this point save for the volatility caused by the dislocations in commodities, following a period of over-investment and the slowdown in China brought on by a realignment of its economic drivers.
An increasingly important factor that seems to be adding to worries and yet is not well understood by investors is the accelerating rate of change that is beginning to undermine many business models. The resultant unpredictability has caused investors to shy away from sectors impacted by the internet, such as retail and media, and areas that are readily commoditized by the digital revolution, like electronic hardware. We believe that the correct response to this is to embrace change and to align with those companies that are driving the change or adapting to it quickly, and these are typically today’s growth stocks – the very companies that some investors are now selling.
In the period ahead there may be fewer winners, but the successful companies have an opportunity to win big and become increasingly dominant. More than ever, a concentrated portfolio focused on future-aligned companies can help contribute to success. This is exactly the game plan for Trimark U.S. Companies Fund.
The rise of passive investment appears to be adding to the volatility we are now seeing. Passive investments tend to follow trends and accentuate movements. As more of the trading is dominated by this unthinking money, short-term price movements become exaggerated because there is less money to stand in and take the other side of a trade that’s been based on thoughtful analysis. In this environment, judgement, focus and deep understanding of a company’s fundamentals are critical to getting it right in the long run. Again, this is what Trimark U.S. Companies Fund seeks to do.