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By Bob Austrian
Despite the latest downturn, we believe underlying forces continue to present attractive, long-term investment opportunities across key structural themes.
Canny thematic investors—adept at rooting out key enablers and beneficiaries of long-term, structural change—were well-served in recent years. Low-cost capital was abundant and COVID accelerated many emerging themes, such as connectivity and cybersecurity. As a result, the Russell 1000 Growth Index outperformed the Russel 1000 Value Index by roughly 1,650 basis points annually for the three and five years ended December 31, 2021.
What a difference a year makes.
As 2022 unfolded, persistent inflation drove the Fed Funds rate target to 4% from roughly zero. Slower growth and lower employment are now Fed goals. Thus far in 2022, the Value Index has outperformed the Growth Index by roughly 2,000 basis points—quite the reversal of recent fortune.
Which begs the question: Were those structural growth themes truly structural, or merely cyclical dreams come true, thanks to an easy-money regime that’s well in the rear-view?
Based on research across hundreds of public and private companies, we believe that the predominant structural investment themes of our time will, indeed, endure. While such themes are by no means immune to business cycles, interest rates, geopolitics, and the ebb and flow of pandemic-era stimulus, these strategies, in our view, have the potential to be attractive sources of alpha and deserve consideration within investors’ long-term asset-allocation plans.
For example, long-term demand for mission-critical semiconductors and capital equipment has stayed generally strong, even as some end markets soften and inventories adjust to near-term shifts. Connectivity remains another unmistakably structural theme as consumers embrace the “Internet of Everything” and new 5G infrastructure upgrades a wired world built over the past 50 years. Climate change and technology to mitigate carbon emissions and promote renewable energy also continue to attract capital and nation-states. The list goes on.
While short-term economic headwinds certainly demand tactical attention, we believe long-term structural forces continue to present attractive, long-term investment opportunities. In our view, these structural themes are not mere cyclical dreams.
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