Domestic Equity—Growth | January 2014
- Durable goods companies appear poised for sustainable earnings growth
We expect consumers to increase their spending on durable goods in the upcoming quarters, which could elevate their current below-average spending levels back toward historical average levels. We see signs that increasing wealth effects from housing appreciation may increase spending on durables despite only modest levels of job creation and wage inflation. Sustainable spending increases on durable goods would likely stimulate earnings growth across a variety of consumer categories including appliances, autos, and furniture. As a result, we believe that select durable goods companies are capable of producing superior earnings growth—yet many of these companies still have attractive investment valuations.
Domestic Equity—Growth | January 2014
- Innovative biotech companies may have underappreciated growth potential
In today’s tepid growth environment, we believe that it’s important for investors to focus on those select companies that have the ability to deliver robust growth throughout a full economic cycle. Specifically, we believe there are investment opportunities within the biotechnology industry that have robust, sustainable, and underappreciated growth potential. Over the past two years, the FDA has become more responsive to biopharmaceutical companies and shortened its drug-review timeline to bring much-needed drug solutions to market more quickly. Our bottom-up research has identified several companies in the biotechnology industry that we believe have reasonable valuations, innovative drug solutions, and a pathway to sustainable organic growth.
Domestic Equity—Value | January 2014
- Companies that return cash to shareholders seem poised for strong performance
Stocks have rallied in recent years partly because companies returned cash to shareholders via increased dividends and share buybacks. In the current slow-growth environment, we believe companies that can grow their cash flows organically or have the ability to add debt to underleveraged balance sheets will continue to boost share buybacks, increase dividends, or participate in merger and acquisition activity. Because our process leads us to emphasize cash flow-rich companies with strong balance sheets, we believe the fund is well positioned to benefit from such shareholder-friendly corporate actions.
Domestic Equity—Growth | September 2013
- Investors have been warming up to rapidly growing companies
In a market environment characterized by low interest rates and economic uncertainty, many investors over the past two years turned to the perceived safety of income-producing investments with less regard for longer-term growth opportunities. As investor demand for yield increased, we believe that many investors paid a higher premium for stocks that offered relatively high dividend yields but provided low earnings growth potential. By contrast, we believe the valuations for faster-growing companies became quite compelling, particularly when compared with the valuations for higher-dividend-yielding equities. In recent months, investors have exhibited signs of refocusing on this upside potential of faster-growing companies.
Domestic Equity—Growth | August 2013
- Rising U.S. energy production appears sustainable and should create subtle opportunities for discerning investors
Technological innovations facilitated a healthy rise in U.S. energy production over the past five years, which followed a 10-year period of slight production decline. We believe there are a variety of companies that are appropriately positioned to benefit from an energy revolution, with some unique opportunities in companies outside of the energy sector. Newer drilling techniques, particularly hydraulic fracturing, significantly improved the amount of recoverable resources in various shale locations across the country. Increasing U.S. energy production has combined with easing consumption patterns to reduce America’s dependency on imports. We believe these supply-and-demand forces are sustainable, secular trends that will have transformational impacts on the U.S. economy.
Domestic Equity—Growth | February 2013
- Companies with strong and sustainable growth have been trading at compelling valuations
An uncertain and low interest rate market environment has presented unique opportunities for investors utilizing a multi-factor approach for evaluating investments rather than relying on a singular view of risk-to-reward in the context of dividend yield. Typically, investors have paid more for high-growth stocks (those companies with estimated earnings-per-share growth rates of greater than 15%) relative to other types of stocks, notably companies that offered a dividend yield higher than 3%. Since 2008, however, that valuation relationship between high-growth and higher-dividend-yielding stocks has materially changed as investors have increasingly preferred income-producing investments. As a result, many companies with sustainable and robust growth potential are now available to investors at valuation levels near the lower end of historic ranges.
Emerging Markets Equity | September 2012
- Chinese economic slowdown strengthens the case for consumer-oriented sectors within the country
In the past, China has relied on two main engines for gross domestic product (GDP) growth: exports and real estate. Looking ahead, we see far better growth prospects in stocks that benefit from domestic consumption as the Chinese spend more on discretionary items. Retail spending has risen, and China has created one of the world’s major gambling regions in Macau, a former Portuguese colony that is the only place in China where gambling is legal. The emerging Chinese consumer is a long-term trend that we believe is gathering momentum and should reward patient investors.