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By Jeff Bourke - July 26, 2019
Here at the midpoint of 2019, markets look very familiar relative to recent years—grinding higher with growth leading value. However, we have noticed that jitters may be setting in due to things like saber rattling with Iran and continued trade war and tariff talks. We have been surprised at the extent to which tariffs actually have gone into place and affected the profitability of some companies.
While some indicators hint that the markets may have trouble repeating their gains in the second half, we remain focused on companies with longer-term growth prospects. Additionally, our evaluation process is based on finding companies that generate high profitability levels and have sustainable competitive advantages. We believe this enhances their ability to weather the storm.
In my most recent video, I explain what we look for and how our consistent approach positions us for the turbulence that may lie ahead. Click on the link below to get the full story.
So far, at the midway point in 2019, the market's been a lot like recent years. It's up, growth has been leading value, but one thing we have noticed is that the market is starting to get a little bit jittery with volatility created by things like saber rattling with Iran, trade wars and tariffs.
So, one of the things that surprised us has been the extent to which we're still talking about trade wars and tariffs. We thought that things would have been de-escalated before now, but tariffs have actually gone into place and have affected the profitability of some of the companies in which we invest.
Sectors like industrials, where companies are more reliant upon cyclical growth, have started to lag while companies in the information technology sector, where there are more secular growth opportunities, continue to lead.
There are some indicators out there that make it look like the market could have some trouble repeating what it's done in the recent past. But fortunately for us, the way we evaluate companies is we look for companies that start out with high profitability levels because they have sustainable competitive advantages. And because of that, these companies typically have pricing power. So, in many cases, and fortunately again for our companies that we invest in, they've been able to pass this along to their customers in the form of price increases. And competitors have done the same because the industries are structured in such a way that there's not a lot of price competition.
So how does that shake out for the second half? Honestly, we don't necessarily know. We believe our ability to add value is through our consistent bottom-up, stock-picking approach—not by taking stylistic tilts or trying to time the market. So, if the market continues as it has with growth leading the way, we believe we're positioned well by investing in secular growth companies. On the other hand, if value starts to lead, we believe that our focus on quality and sustainable competitive advantages can differentiate us from other growth managers.
Looking ahead to the second half of 2019, turbulence has been a theme so far this year, and I think that can persist for the rest of the year. But we, as managers of the Premier Growth Strategy, know that we are just a part of investors' broader portfolios, and it's our responsibility to manage consistently and stay the course, regardless of the weather.
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