Growth: Back to Basics & Patience
“When short-term market dynamics appear more complex, we recommend sticking to the longer-term basics - stock prices generally follow earnings growth over longer periods of time says Joe Duffy, Investment Specialist Director at Harbor Capital Advisors.
With inflation, interest rates, volatility, and recession rumors grabbing so many headlines, Duffy thinks now is a good time to remember the fundamentals of investing.
“Harbor Long-Term Growers ETF (WINN) has the potential to serve as a strong anchor position in portfolios, given the Fund’s disciplined focus on companies that have been growing in excess of the broader market,” says Duffy. “Plus, it enables access to a highly experienced and decorated portfolio management team with a 50+ year successful track record of investing within the U.S. large cap growth equity space.
It comes back to company fundamentals: We believe companies with sustainable competitive advantages have the potential to drive superior levels of long-term growth and generate strong returns for shareholders. It sounds easy enough, but how does the WINN team identify these companies?
“Many of the companies that the portfolio management team at Jennison Associates, the fund’s manager, favor possess durable competitive advantages,” says Duffy. LVMH Moet Hennessy Louis Vuitton, Chipotle and Tesla are good examples of the type of companies the portfolio managers seek. Take LVMH Moet Hennessy Louis Vuitton for example. They own several of the world’s most-loved luxury brands including Tiffany & Co., Dior and Bulgari and exhibit strong pricing power and consumer demand. Another example is Chipotle. They’ve rolled out new product introductions and implemented a faster cadence of price increases in the past year due to rising input costs without harmful effects on customer traffic and satisfaction. That’s brand loyalty.”
Another source of persistent above-average growth is companies that exhibit industry leadership and innovation.
“Tesla has been controversial, but if you look at the business, their innovations have led to record demand for their electric vehicles. Importantly, Tesla has increased production capacity via new assembly plants in Berlin, Germany and Austin, Texas. As electric vehicle adoption gains momentum globally, the company remains well positioned from both an industry leadership and long-term growth perspective.”
Duffy says the performance returns of more cyclically tilted offerings and asset categories are typically more dependent on prevailing economic conditions. Conversely, WINN’s portfolio is longer-term focused and is positioned to benefit from a number of secular related trends the investment team believes are in the early stages of their evolution. These include:
These exemplify some of the long-term, secular trends that WINN likes to be part of, which are likely to stand the test of time throughout economic cycles.
Many of WINN’s portfolio holdings positioned with the potential to benefit from these trends are well-established market leaders. However, the team’s specialized research analysts establish contact with emerging players early in their development, in an effort to stay up to date with the competitive landscape, and also identify potential future opportunities for the Harbor Long-Term Growers ETF.
It’s hard to argue with the merits of long-term growers, but given the market activity of the past few months, not to mention lingering memories of past bubbles and recessions, one has to ask: is this the right time?
“I believe the answer is yes, and here’s why. When the economic environment becomes more challenging and less visible, investors tend to migrate towards stocks and industries with lower volatility and higher liquidity profiles. Alongside this investor preference shift in 2022, multiples for growth stocks have exhibited meaningful compression. As multiples have declined, WINN has maintained investment in companies with above-market earnings growth profiles. This means that despite sourcing companies with stronger levels of earnings per share expansion, WINN is now paying less per unit of growth versus the broader market” says Duffy.
“Another key consideration is that following strong economic expansion in 2021, many U.S. GDP forecasts are now pointing to near-term deceleration of economic growth with conditions normalizing moving forward. As growth slows, I believe WINN should likely be rewarded for finding durable growth in a scarcity of growth environment,” he adds.
Here’s Duffy’s proposition: Look past the current uncertainty. Buy companies with underappreciated multiyear structural growth opportunities at more attractive valuations today in an effort to reap their potential long-term rewards.
“Harbor and Jennison have partnered together for over 50 years” says Duffy. “Some fund managers may change their style based on the weather. Conversely, Jennison employs a disciplined approach centering on company fundamentals and long-term growth. While this may result in their approach being out of favor over shorter-term periods, our history together has proven that Jennison’s strategy favors long-term investors. When the waters become choppy, we believe it’s important to look through shorter-term turbulence and focus on long-term investment objectives”
Consider the impact of an allocation to the Harbor Long-Term Growers ETF (WINN) to help achieve your long-term financial goals.
Learn about our insights & how your Harbor representative can help.
The views expressed herein may not be reflective of current opinions, are subject to change without prior notice, and should not be considered investment advice.
Investors should carefully consider the investment objectives, risks, charges, and expenses of a Harbor fund before investing. To obtain a summary prospectus or prospectus for this and other information, visit harborcapital.com or call 800-422-1050. Read it carefully before investing.
Top Ten Holdings and % of Net Assets: Tesla Inc. (7.84%), Apple Inc. (7.46%), Microsoft Corporation (6.56%), Amazon.com Inc. (6.49%), Alphabet Inc. Class A (3.62%), Visa Inc. Class A (3.57%), Alphabet Inc. Class C (3.55%), Eli Lilly and Company (3.41%), Salesforce Inc. (2.89%), NVIDIA Corporation (2.87%).
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Investing involves risk and the potential loss of capital.
Investors should carefully consider the investment objectives, risks, charges and expenses of a fund before investing. To obtain a summary prospectus or prospectus for this and other information, click here or call 800-422-1050. Read it carefully before investing.