Even bull markets need clever stockpickers
April 2024
There’s a common adage sometimes applied to stock markets: a rising tide lifts all boats. The thought is that when markets surge – as they did in the March quarter – fund managers just need to invest capital and the gains will come.
But this broad-brush view fails to recognise the nuances in market rallies that a skilled manager can identify to the benefit of end investors.
Wellington Management is one manager that fulfils that role in the Cornerstone portfolios. Since its launch in 1928, the Boston-headquartered manager has built more than US$1 trillion in assets under management for clients in 60 countries and regions.
So what exactly does Wellington Management do for Cornerstone portfolios? It invests in global shares that are classified as “growth companies” due to their strong earnings and potential share price momentum over the long term. Companies which fit this bill include big tech companies like Amazon, Alphabet and Nvidia, as well as financial services companies such as Mastercard.
Specifically, Wellington is part of the suite of managers that provide active global equity exposure.
In recent times, Wellington has successfully discerned between the hype driving some sectors of global share markets – such as technology – and the reality that underpins the prospects of individual companies within those sectors.
The nature of “growth investing” means that it's heavily reliant on accurate forecasts of company earnings up to five years in advance. Fund managers must consider, for example, potential new technologies that will arise in that time frame or an increase in potential market opportunities.
This makes it one of the hardest strategies to get right as sometimes calls on growth don’t play out in the short term. Tesla is a recent example of this issue, given its share price has been volatile in recent months due to increased competition from Chinese electric vehicle makers.
Over the March quarter, Wellington outperformed its benchmark – the MSCI AWCI Index – by 7% and outperformed by 10% over the year to March 31. It yet again proved it fits the bill of a skilled manager which is able to “read between the lines” when it comes to analysing company fundamentals and market hype.
Source: Russell Investments
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