The world, and the markets, have changed. You may find yourself adapting to different economic and market changes for a new definition of value. Quality is still a prime focus that looks to companies with solid management, financials, and competitive advantage for answers. Your organization and the companies you invest in must have the ability to navigate challenges in the face of intense disruption, ever mindful of management and culture.
Holding Steady
The significant fiscal response by the Federal Reserve and their global counterparts have propelled financial asset prices to unprecedented heights. Unparalleled liquidity injections promised to support an economic recovery caused by the Covid-19 virus. While symptoms of a struggling economy appeared to lessen, sadly, some have re-emerged. It is important to look at your portfolio and ask your investment manager, “What now?”
Clearbrook Global doesn’t believe the economies will contract or decline like in 2020, based on the success of the experiences and responses we’ve learned along the way. However, there will be many challenges to ensure equity valuations reflect a trajectory of solid growth and profitability going forward. In addition, low interest rates won’t be around forever and will shortly begin to climb. However, it will take a decent amount of time to return to levels we have historically seen.
Financial Decisions in the Face of Historical Challenges
With all the attention on the Covid economy, perhaps the most significant concern is the many areas around the globe where civil unrest, military action, and potentially aggressive movements across borders might take place. Governments are now being pulled in many conflicting directions, giving rise to historical challenges that can create even more market volatility.
Given this backdrop, Clearbrook advisors has oriented our holdings to be more US-centric and pulled back on emerging markets and parts of Europe that rely on growth in underdeveloped markets. We have also reduced exposure to markets that depend on large sales and production volumes at very competitive pricing structures in favor of more common margin situations. By definition, this strategy orients us more towards larger capitalization growth opportunities versus value. We will focus on opportunities where we can more easily meet demand rather than longer buildouts.
Value opportunities peaked in the spring and involved energy, financials, and certain manufacturing companies, seeing double-digit gains. Decisions were based on positive vaccine developments and feelings that a global recovery from Covid was around the corner.
With the emergence of the Delta variant, we anticipate more rough road ahead and look to large-growth portfolios in big US companies with high earnings, sales, book value, and cash flow rates. They have higher valuations and live in rapidly expanding industries, maintaining high price ratios and low dividend yields.
Experienced Viewpoints with New Perspectives
Our experienced teams at Clearbrook include a vast array of experience, able to put a modern spin on the evolution of today’s market. Traditional value investing, pioneered by Benjamin Graham in the US after the Great Depression, has undergone profound changes that require a new mindset. While he laid the groundwork in the 1930s and 40s, we’ve gone from generations of investors with opposing viewpoints who steered clear of macroeconomic trends and market patterns to investors who carefully assess a company’s fundamentals.
Knowing how to value growth and assess qualities like competitive positioning is more central to an investor’s success today. The free flow of information, ease of screening for metrics on prices and earnings, and the rapid pace of change help us find the right combination of risk and investments.
Clearbrook’s next evolution of managers and advisors are more diverse, more globally focused sharing a mindset for growth and with an eye constantly trained on value. They help invest in what you already know but add other components that consider a broader view of a changing world.
The Right Investments for Your Organization
What now? You may be drawn to innovation or feel more comfortable investing in businesses after fully assessing and analyzing the economics to understand a range of outcomes and risks. You’ll benefit from portfolio management as we invest in companies with an owner’s mindset. We want to improve your organization’s core business by investing in opportunities that extend competitive advantage and grow your portfolio regardless of volatility.
We infuse lessons from evaluating the key points that lead to the success of other investments including, helping private foundations and organizations identify board members, advising them on financial processes, and helping them invest directly in companies at crucial points in their development. Our advisors find investment opportunities in public equities with a portfolio of strong brands, well-treated front-line workers, and a proven record of disciplined investments.
During the pandemic, it has been critical to look at companies with management that knows how to move quickly and reinforce business operations. It allows us to get assets or make investments when others aren’t, which gives our clients an advantage over time. But we need to move quickly in this volatile environment, ready to pivot when necessary, to achieve financial goals.
It’s important to remember some investment basics:
- Review your portfolio and financial goals and determine if it still makes sense. Base decisions on long-term goals, not daily market fluctuations or short-term trends.
- Evaluate risk tolerance based on the current market volatility. Difficult decisions are easier to make when your portfolio manager can reaffirm your need to stay the course or make some changes.
- Understand that portfolio diversity is designed to reduce risk and account for volatile markets. It includes investments that have higher returns in different scenarios.
- Learn more about economic cycles and the importance of staying in the market. It’s not about timing but rebalancing. Investors with diversified portfolios who remain in the market have historically and consistently experienced steady gains over time.
Clearbrook advisors constantly research and monitor the market. Our findings have oriented our holdings to the growth of underdeveloped markets and more typical margins in the US, based on the current economic setting. While larger capitalization growth opportunities are the focus today, we help you achieve consistent value by following the continually changing demand.
Sources:
Barron’s Stock Screen, Kapadia, R., 2021. Value Investing, 9 Funds To Play Value’s Recent Comeback, https://www.barrons.com/articles/9-funds-to-play-values-recent-comeback-51615070221
Barron’s, Kapadia, R., 2021. Value Investing, The Next Generation of Would-Be Buffetts—and the Stocks They’re Buying Now, https://www.barrons.com/articles/stock-market-new-value-managers-51621619129
Us News and World Report, Large Growth, https://money.usnews.com/funds/mutual-funds/rankings/large-growth
Barron’s, Kapadia, R., 2021. Value Investing, The Next Generation of Would-Be Buffetts—and the Stocks They’re Buying Now, https://www.barrons.com/articles/stock-market-new-value-managers-51621619129
USBank, 2021. 5 strategies for coping with market volatility
https://www.usbank.com/financialiq/invest-your-money/investment-strategies/four-strategies-for-coping-with-market-volatility.html