Eric Clark, Portfolio Manager

We have all heard the adage, “the stock market is a discounting mechanism”. Stocks tell a story of the future long before the facts confirm it. Most growth stocks peaked in late 2021 and have experienced significant drawdowns ever since.

There is no right or wrong way to build an investment portfolio. Rather than spreading money across style boxes simply using backward looking performance data, which is a typical approach, we think there's a more thoughtful strategy that can add attractive diversification benefits and enhance returns over time. Loosely, this strategy is named, "thematic investing."

There are always some hindsight-based methods of predicting bear markets and taking full risk-off positioning. Sometimes they work perfectly. While other times they create a ton of capital gains and tax liabilities only to realize the exit level should have been where the cost averaging strategy began.

In last week's blog, I highlighted the positive long-term track records of a handful of the most admired brands to show how important the consumption thematic is for investors. I also showed the corrections that happen along the way as a reminder that stocks do not always go straight up, nor does a basket of stocks always outperform. Over the long-term, however, the data is very clear. The Consumer Discretionary & Tech sectors have a very strong track record versus the overall market as measured by the S&P 500. Today, it's important to widen the lens as the Consumer Discretionary & Tech sectors struggle with rising rates and a difficult macro environment. The important point, however, is to not get shaken out of owning great companies when they are underperforming. If you loved these companies and sectors when they were outperforming, you should love them even more now that they are experiencing a rare period of underperformance.

In last week's blog, I highlighted the positive long-term track records of a handful of the most admired brands to show how important the consumption thematic is for investors. I also showed the corrections that happen along the way as a reminder that stocks do not always go straight up, nor does a basket of stocks always outperform. Over the long-term, however, the data is very clear. The Consumer Discretionary & Tech sectors have a very strong track record versus the overall market as measured by the S&P 500. Today, it's important to widen the lens as the Consumer Discretionary & Tech sectors struggle with rising rates and a difficult macro environment. The important point, however, is to not get shaken out of owning great companies when they are underperforming. If you loved these companies and sectors when they were outperforming, you should love them even more now that they are experiencing a rare period of underperformance.

Historically, equity markets are positive roughly 80% of the time, or 8 out of 10 years. So far this year, they are negative. In addition, the average annual drawdown peak to trough is ~14% (source: J.P. Morgan Guide to the Markets Report).

Consumers have already begun making decisions based on higher prices. There will be big winners and losers which makes stock picking a very important portfolio position for the next 12-24 months. Not every company is well suited for the environment we are in, and the most relevant brands will be taking market share. That’s where our team is focused from a stock selection perspective.

Consumers and institutions spending >$40 trillion per year is the largest addressable market opportunity there is. Within the primary thematic, there are a few mega-trends that offer investors significant investment opportunities.