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.
References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities. The securities referenced may or may not be held in the portfolio at the time of publication and, if such securities are held, no representation is being made that such securities will continue to be held.
The views expressed herein are those of PGIM investment professionals at the time the comments were made, may not be reflective of their current opinions, and are subject to change without notice. Neither the information contained herein nor any opinion expressed shall be construed to constitute investment advice or an offer to sell or a solicitation to buy any securities mentioned herein. Neither PFI, its affiliates, nor their licensed sales professionals render tax or legal advice. Clients should consult with their attorney, accountant, and/or tax professional for advice concerning their particular situation. Certain information in this commentary has been obtained from sources believed to be reliable as of the date presented; however, we cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. The information contained herein is current as of the date of issuance (or such earlier date as referenced herein) and is subject to change without notice. The manager has no obligation to update any or all such information; nor do we make any express or implied warranties or representations as to the completeness or accuracy.
Any projections or forecasts presented herein are subject to change without notice. Actual data will vary and may not be reflected here. Projections and forecasts are subject to high levels of uncertainty. Accordingly, any projections or forecasts should be viewed as merely representative of a broad range of possible outcomes. Projections or forecasts are estimated based on assumptions, subject to significant revision, and may change materially as economic and market conditions change.
For compliance use only 4027547
