The traditional distinction between “growth” and “value” continues to evolve. This was clear during a recent roundtable discussion with Matt Moberg, Portfolio Manager at Franklin Equity Group; Sam Peters, Portfolio Manager at ClearBridge Investments; and Steve Lipper, Senior Investment Strategist at Royce Investment Partners and President of Royce Fund Services.
- As a growth manager, Matt is focused on five innovation platforms that are shifting society into what has been called the Fourth Industrial Revolution. The platforms that are creating titans of future leadership include: disruptive commerce, genomic advancements, intelligent machines, new finance, and exponential data.
- Innovation is one of the most mispriced parts of equity markets as the intangible nature of their advantages are often difficult to quantify. Innovation will often multiply market sizes and create new investment ecosystems.
- Sam leans toward the value end of the investor spectrum where his process focuses on how the investment environment is driven by cycles. For example, the transition away from traditional energy creates dislocations that create opportunities to invest in innovation at prices that can be justified by traditional valuation metrics.
- Small- and mid-cap stocks are typically where the next leading companies are found, and the pandemic highlighted the resilience of the highest quality businesses.
- Steve highlighted that small caps tend to outperform large caps in periods of high economic growth, rising interest rates, and modestly increasing inflation. Digging a bit deeper, small cap value tends to outperform small cap growth in these types of environments.
While each of these investors start with different approaches, they found common ground in principle: invest where you are rewarded for improving fundamentals of the underlying business. Active management, thoughtful diversification, and strategic reallocation can prepare portfolios for shifts when environments and catalysts change.
What Are the Risks?
All investments involve risks, including possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested. Past performance is not an indicator or a guarantee of future results. Stocks historically have outperformed other asset classes over the long term, but tend to fluctuate more dramatically over the short term. Investments in fast-growing industries like the technology and healthcare sectors (which have historically been volatile) could result in increased price fluctuation, especially over the short term, due to the rapid pace of product change and development and changes in government regulation of companies emphasizing scientific or technological advancement or regulatory approval for new drugs and medical instruments. Small- and mid-capitalization companies can be particularly sensitive to changing economic conditions, and their prospects for growth are less certain than those of larger, more established companies.
Actively managed strategies could experience losses if the investment manager’s judgment about markets, interest rates or the attractiveness, relative values, liquidity or potential appreciation of particular investments made for a portfolio, proves to be incorrect. There can be no guarantee that an investment manager’s investment techniques or decisions will produce the desired results.
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