Future of equities

Looking back at 2024, it’s clear that US equity markets had become concentrated, thanks to the AI hype and bubbly tech stocks. At one point, the Magnificent 7 (Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia, and Tesla) comprised nearly 30% of the S&P 500¹.

• Thematic equity investments continue to offer an alternative way to harness disruptive and innovative technologies without the limitations that come with a concentrated sector bet².
• Moreover, the concentration of today’s stock market, both geographically and at the individual company level, coupled with rates that will be higher for longer, means diversification, analysis, and time-tested investment themes are more important than ever.
• According to our 2024 survey, 63% of fund selectors believed active would outperform passive in 2024 – of which, 75% said active will be essential for generating alpha³. So, while passive funds overtook active funds in terms of assets under management at the close of 2023, the next ten years could be very different.

Clearly, the investment environment we lived in from 2010 to 2020 was abnormal – after all, there’s nothing normal about living with non-existent inflation and zero interest rates. Looking ahead, ‘back to normal’ is likely to spell stickier inflation and higher rates for longer, making active portfolio management potentially the best way to manage the next ten years.

Aziz Hamzaogullari, Founder, CIO and portfolio manager for Growth Equity Strategies at Loomis Sayles, on why his long-term vision for assessing profitable growth equities is the same as it has always been: “We really focus on the long-term secular drivers and sources of sustainable and profitable growth. Historically, these key structural drivers do not change very frequently, and they sustain themselves for long periods of time.

“We are talking about things such as the evolution of payments from paper to electronic; the migration of retail from bricks and mortar to online; and the migration of advertising from the physical world to online and the transformation of our world through the development and integration of AI. Durable growth is very rare, and once we find these rare businesses, circumstances frequently allow for us to stay invested for a long time.”

Danny Nicholas, Client Portfolio Manager at Harris | Oakmark, on why there is a case to be made for a more sustained period of value outperformance: “It’s not unusual for the S&P 500 to achieve a new high. Over the past 5 years it reached a new high 165 times, that’s nearly three times a month on average⁴.

“Experienced investors know that timing the market is very difficult and for fundamental stock pickers and value investors any time can be a good time to invest – the key is picking the right stocks at the right time.”