Broadening scope for growth in an easing cycle
Nov 5, 2024
Jennison Associates’ Mark Baribeau is optimistic about secular growth opportunities that appear poised to stand out against the evolving backdrop thanks to strong fundamentals.
Growth stocks remained resilient with positive returns in the third quarter, but trailed the broader market as cyclical and more rate-sensitive sectors came into favour. They continued to lead the market over the one-year trailing period. Given expectations for the Fed’s easing policy, markets started to rotate into stocks that would benefit from declining interest rates during the quarter. Interest-rate sensitive equities like REITs, utilities, and financial services outperformed, while technology and communication services lagged the market.
PARADIGM SHIFT IN TECH
The move to generative artificial intelligence (AI) is the fourth era of computing that will likely create new businesses and winners. AI's rapid advance and the continued digital transformation among businesses and consumers are driving improved fundamentals, especially among mega-cap tech companies that can invest heavily to stay at the forefront of innovation and disruption.
OPTIMISTIC ABOUT SECULAR GROWTH AND AI EXPANSION
We continue to see a healthy backdrop for growth stocks. While we remain optimistic about the upside potential stemming from the buildout of AI applications being developed to benefit consumers, we also see significant potential for other secular trends to experience strong growth going forward. Viewing growth through a secular scope reveals a broadening opportunity set.
SEIZING SECULAR GROWTH OPPORTUNITIES
We remain focused on finding the best secular growth opportunities around the world. Our focus on finding innovative companies naturally uncovers disruptive themes over time. Below are secular themes we see offering compelling growth opportunities based on our bottom-up research.
- Advanced technologies. AI and cloud computing continue to revolutionise industries, amplifying demand for increasingly intelligent software and infrastructure. Emerging new developments in generative AI will be a leading structural driver within technology as productivity-enhancing business applications impact our daily lives, including how we work, consume, and interact digitally.
- Global consumer. As large, younger demographic populations with healthy disposable incomes reshape consumption patterns and generate persistent demand for luxury goods, we continue to favour strong, global consumer brands that have direct-to-consumer business models, omni-channel distribution networks, and proficient inventory control.
- Industrial automation. A boom in manufacturing and high-tech facilities leveraging AI is fueling advanced automation of industrial processes to enhance efficiencies. We expect U.S. manufacturing capacity growth to continue to accelerate, driven by the U.S. CHIPS Act. A large group of industrial, factory automation, and semiconductor companies are poised to benefit from the megatrend of AI-enabling infrastructure expansion over the next several years.
- Healthcare innovations. An innovation cycle marked by advanced research capabilities, game-changing therapies, and digital supply chains is fostering demand for more integrated healthcare ecosystems. We continue to see strong potential in leading-edge treatments for diabetes, obesity, and rare diseases.
- Fintech platforms. Consumers are rapidly embracing powerful financial technology platforms, particularly in regions where sophisticated financial systems are limited. Our focus remains on emerging markets technology platforms that facilitate financial services and enhance consumer access to products and services.
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