Transcript: Despite volatility risks, fundamentals remain key for growth investors

Headwinds on the horizon

JW: There are a couple of big notable headwinds, and the biggest one in my mind is thinking about the regulatory environment. You’re seeing [Mountain View, Calif.-based] Google come under a lot of scrutiny lately, AI is exponentially growing. There are concerns. And, so, I can see the regulatory environment being a headwind for growth investors. If you look at the dawn of the internet, if you look at all the regulatory scrutiny Microsoft had when they launched their software, and now Google with its search engine, this is kind of part of growth companies doing really well, doing what we would want them to do, have competitive advantages. But it is an area that you have to consistently monitor, and each company does have different drivers and regulatory concerns.

Current tailwinds

JW: Obviously, AI is the major theme and tailwind for growth investors, not only in technology and communication services, but on healthcare companies, biotechnology advancements, consumer discretionary, industrial companies. And these sectors combined make over 75% of the growth universe. So, I feel like there’s multiple tailwinds. There’s personalized medicine, there’s online payments outside of the traditional cash [and] credit card companies that are going to take over. You could look at autonomous cars or electric vehicles. I mean, these are companies that are firmly situated in the growth universe. And so, we think there are multiple tailwinds, and, quite frankly, multiple ways to win. Again, not just in the usual suspects of technology names, but really across the universe of large-cap growth.

Name she likes

JW [Sunnyvale, Calif.-based] Intuitive Surgical is a company that we’re invested behind. They actually fall under multiple themes in this portfolio. Artificial Intelligence is one of them, as well as subscriptions and consumables. So, we think robotic surgery will become pervasive for a number of procedures, obviously, elective surgeries. And Intuitive Surgical is a clear leader. AI will help make their robotics even better. And when we look at the R&D spend on technology and innovation, they are leaders in the category. The company manufactures and produces robotic surgical systems and then sells them into hospitals. And so, we can see this company benefiting from more elective surgeries happening globally, as we see aging populations. [Stockholm, Sweden-based] Spotify is another great one. If anyone’s like me, you probably have seven to 10 subscriptions between Netflix, HBO, Spotify, Apple Music, can’t keep track! But they are the world’s largest dedicated streaming music platform, with 30% global market share for paid subscriptions. Over 600 million users. They have really found cost discipline. They’re also getting into podcasts, and are getting into audio books later this year. It’s very reasonably priced, particularly relative to video streaming and other companies. Also, they have the ability to raise prices modestly and you’re not going to lose subscribers along the way. And, so, we think they can grow subscribers 5 million to 6 million a year. We really like companies that have this pricing power. And Spotify, definitely, I would highlight, is one of the newer adds to the portfolio.

And finally, what’s the bottom line on investing in U.S. equities in the current moment?

JW: When you look at performance of growth issues over the last, let’s call it, five years, you’re looking at returns north of 19% annualized. So, you know, my takeaway for investors, and particularly in growth space where I think you have robust returns, is I think it’s important to think about long-term investments. You have to be invested in the stock markets. Trying to time it is a very difficult task. You have to be present to win.

Well, those are today’s Soundbites, brought to you by Investment Executive and powered by Canada Life. Our thanks again to Jyotsana Wadera of Putnam Investments. Visit us at investmentexecutive.com, where you can sign up for our a.m. newsletter and never miss another Soundbite. Thanks for listening.

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