With the global economy in late cycle, should stock investors expect to see growth’s longstanding dominance give way to value? Portfolio manager Brad Vogt concedes it’s possible but proposes a more nuanced approach to the market.
Equity portfolio manager
31 years of investment experience
Apu Sikri: Brad, we’ve had a long streak where growth stocks have outperformed the more dividend-oriented value stocks. What about that trend? Do you see that turning anytime soon, as everyone starts to worry, “Are we sort of in the late stages of the global economic cycle” — and economies around the world start to slow down a little bit?
Brad Vogt: What we know is that we've been in a very long up cycle. And past is not prologue, but we know this is one of the longer expansions in the last hundred years economically in terms of upmarket — particularly in the U.S., the duration of the market. So on a general spectrum of aspirational to careful, you're always somewhere on that spectrum as an investor, generally, with the markets. And personally, I think we're toward the careful side. I don't know whether it will be a quarter from now or a year from now or three years from now, but we're quite likely to go through some normal, significant correction.
We had a bit of that recently, not quite, around 20% correction that quickly was reversed.
Apu Sikri: You’re thinking of December 2018.
Brad Vogt: Right. And we're probably due for something that's either a little bit more deep than that and/or is longer. That would be very normal for the market.
So having said that, we're not investing in the whole market, and there are two dimensions to that point. One is, you really want to think about what type of fund you're in, because our funds are built for different purposes. Some of our funds are quite aspirational. They own essentially all growth, capital appreciation stocks. They're going to own them at the beginning of an expansion. They're going to own them at the middle; they're going to own them at the end. However, as active managers, we're going to be very conscious about which growth companies and which capital appreciation stocks we're investing in, rather than just buying all of them in rank order, the way an index fund does.
For our middle-of-the-road, more core growth-and-income — either individual funds or solutions — again, there's a mix there: some growth companies, some more stable dividend-oriented companies. And again, when you say dividend companies, there's a huge range. There are everything from very fast-growing companies who have a dividend payout that's relatively low — but the company's growing, and the dividend is growing quite fast — all the way to a slower moving utility or telephone company that is paying out most of its earnings in its dividend, and it might be growing 2%, 3%, 4%. So there's a massive spectrum of dividend-paying companies, but we tailor the type of companies we invest in to those solutions or their funds.
So the investor sort of knows what they're getting. We're not flexing all over the map, and one time the fund is in all growth stocks and two years later it's completely in low-volatility utility stocks. So we think that's a very important distinction, that people invest in a program that they have a sense of which way it's leaning, and then you don't have to be quite as tactical predicting the market.