Secular Growth Stocks: The Cycle is Far from Over

Thomas Davis, Global Equity Portfolio Manager at Jennison Associates, weighs in on demand trends, secular vs. cyclical growth stocks, investment opportunities in digitalization, and how to capture secular themes in portfolios.

February 07, 2020

Investors sometimes paint growth stocks with too wide of a brush, failing to discern cyclical from secular growth. In a recent Asset TV interview (see video below), Tom Davis, Global Equity Portfolio Manager at Jennison Associates, explained that “growth is clearly not a monolithic asset class” when asked how he differentiates the two. Davis and team focus their attention on secular trends and long-tailed opportunities that are less tied to global economic growth and trends. While some investors question when or whether the growth cycle is already over, Davis reasons that even in a slower growing global economy, when actively managing a concentrated portfolio there are always companies coming up with promising innovations that can lead to significant, long-duration growth. He believes his team’s task is not to invest in growth that has already been achieved and priced in, but rather to search for the global growth stories of tomorrow. When asked about future secular trends, Davis points to digitalization and opportunities he sees in “e-commerce and digital payments, things where you're seeing adoption take place” and healthcare which is “not particularly tied to broader economic trends because people get sick, they need treatment, whether times are good or times are bad.”

Transcript

 

How to find disruptive growth?

Davis explains how his team seeks to identify disruptive companies offering products and services that are “better than whatever may have existed really up until this time” and how they create demand. He adds that the team starts their research by looking at demand trends and what companies and individuals are buying. “If we see a lot of revenue growth, a lot of sales growth, that's an indication to us that perhaps there's something going on with this company that perhaps is replacing an incumbent product or service. And that's the kind of business we want to be all over,” says Davis.

How to manage risks?

When asked how to mitigate risks given global growth fears, trade tensions, and geopolitical uncertainties, Davis responds “We try to address those concerns on a fundamental level, trying to understand how companies may behave in different scenarios. We look very carefully at where those businesses are selling their services or importing materials for their supply chain. We try to mitigate it by minimizing our exposure to the companies that might be most affected.”


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