A window of opportunity in growth stocks

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We're living the charmed life in markets and we don't even know it. COVID-19 has accelerated the growth and uptake of technology, and companies are reporting record levels of growth from the scale of technological disruption last year. Not only that, computers are getting faster and can keep pace with our uptake. 

The world is flush with cash from stimulus packages, especially in the US, and we're in a low-interest rate environment. More to the point, the inflationary spike everyone is fearing has not yet hit. In fact, even if interest rates were to go up, Griffin said, it's not going to change who wins in the long run. No fear. 

In this video, Griffin takes us through his rosy outlook on markets and why this opportunity won't last forever. 


Edited transcript 

What is the one thing the market is overlooking right now?

The thing that we spend a lot of time talking about is and have done for years is this acceleration in disruption. We think it's important right now because the whole market's not talking about it. The whole markets talking about inflation and economic recovery, et cetera, but we would just point out a couple of things that we know are now true. 

Firstly is that computers are getting faster. And so we've known for years now that Moore's Law would accelerate compute power, and accelerating compute power accelerates disruption. For the viewers, that's as simple as the internet used to just be able to be in an internet cafe and search stuff, and now it can move through pictures, to streaming video, to running software, to providing your food delivery on a Friday night.

And so as computers get faster, disruption accelerates, and we know that computers will continue to get faster for at least the next 15 years. On simple estimates, every computer in the world should actually get 60 times more powerful over that 15 year period. And so on the supply side, disruption will accelerate.

The really interesting thing that happened last year because of COVID is normally technology would happen slowly over time as people get used to it. Your child does it, and then you do it and then your grandparents do it. COVID effectively forced that acceleration and adoption. And so we have this interesting connection where you have an acceleration in the supply side of disruption, and an acceleration in the demand side of disruption. And so most people are expecting all of these companies to slow in the second half as COVID goes away, all of this disruption to slow. And what we think might happen is the reverse. It actually accelerates or continues to accelerate from what we saw last year, and we don't think that's actually factored into a lot of share prices today.

Is there a flaw in the popular narrative that rising rates are bad for growth stocks?

Yeah. Clearly higher interest rates does lower the price of long duration equities and growth stocks would be part of that group. So we've definitely seen a part of the back-up and interest rates has caused a correction in valuations, but we would argue it is just that, it is a correction in valuations. 

Interest rates don't change who wins and loses in the long run. They just change the price you pay for them. 

And so what investors need to try and get their head around is how far do they think interest rates will back up? And so when is the opportunity to invest in some of these great winners that we know are still coming through?

So from our point of view, I think most people agree that it's very difficult for interest rates to back-up significantly, just because of the amount of debt there is in the world today. That large amount of debt is obviously got worse because of COVID, significantly worse because of COVID, and ultimately that becomes a drag on growth. So even if you look at Joe Biden's stimulus plans in the US, they're being funded by higher tax rates. Ultimately there isn't this concept that people are just printing money and spending bridges to nowhere. They are actually trying to eventually balance budgets. From that point of view, we still feel a low-growth world is one you can expect after the recovery. We completely see the recovery will be higher growth, and we still think a low interest rate world is one that you can expect. And so that's ultimately going to be fertile on a medium-term view for growth equities.

On rising interest rates

Look, if we do get to 15% interest rates or 10% interest rates, or even 5% interest rates, I think we've all got a problem, not just growth equities. And so from that point of view, we would argue 2.5% is definitely the peak that we think you could get to. The speed you get there is important. If you get there slowly, it's still not a big issue, but much higher rates would see us move into much more of a capital protection road. And if the Fed did lose control of inflation or interest rates, that's a scary place for all asset classes, not, just growth equities.

Want to learn more?

Munro focuses on identifying and investing in companies that have the potential to grow at a faster rate and on a more sustainable basis than the peer group. To find out more, visit the Munro Global Growth Fund Profile or their website.

Check out the last video from Nick Griffin where he reveals an opportunity "as big as the internet" that people haven't caught on yet.

Stay tuned for next week where Nick explains why he believes a company he bought back in 2014 is still one of the great opportunities for our time.


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