The strengthening economy, the possibility of higher interest rates, and ongoing tapering may benefit those with a quality-driven investment approach. Portfolio Manager Whitney George discusses why our disciplined approach has been out of sync over the past few years and the recent rebound for economically sensitive businesses—and the asset managers who invest in them.
"We're very happy about the progress we've made this year. Certainly year-to-date numbers are looking a lot better relative to benchmarks than they have in a long time, and that's led into one-year results that are, I think, very satisfactory, and hopeful that it will continue into the longer term.
"It's been driven by a combination of things, one which we've highlighted for quite some time now that dates back more than a year is normalizing in the sort of interest-rate environment or expectations for interest rates.
"It goes back to when taper talk first began last May. Our style of investing in high-quality companies, strong balance sheets, high returns on capital was disadvantaged by the zero interest-rate environment of the last round of QE we went through. That round of QE really benefited lower-quality companies, companies that could take advantage of easy credit and low rates to remain in business, refinance, survive, and that was to the detriment of the kinds of companies that you would expect to see take market share and be able to advance relative to their competition in a difficult environment.
"In addition to that, we have been positioned for a long time in economically sensitive sectors of the market. Last year was the first year in many that we did not go through a recession scare at midpoint, which would drive investors into defensive stocks and out of economically sensitive stocks.
"Finally, we're seeing the benefits of that and have been for the last year as people have become more optimistic, more forward looking, have expectations now of economic growth in this country as opposed to, you know, looking over their shoulder for the next recession.
"So, areas in particular like Energy, Materials, Industrials, Information Technology have all performed nicely, particularly Energy in the first half of this year because we had a very harsh winter and natural gas prices obviously went up and really got investors to focus on some of the opportunities there."
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