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Large cap growth stocks showing resilience in turbulent times

Outside of the ubiquitous Magnificent Seven, large cap growth stocks have been buffeted by prevailing economic conditions. Yet global large caps can still offer investors significant shareholder value.
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Amidst high inflation, interest rate uncertainty and geopolitical turmoil, global large cap growth equity funds with considerable exposures in leading companies trading in growth sectors have shown remarkable resilience and are potentially poised to generate more gains in the future.

These funds continue to attract investors with the lure of robust long-term growth in shareholder value, even during times of economic uncertainties.

Global large cap growth equity funds typically invest in listed companies with a market capitalisation exceeding $12 billion USD and generally demonstrate strong growth factors and metrics such as:

  • Revenue Growth Rate: Measures the increase in a company’s sales over a specific period. High revenue growth indicates strong demand for the company’s products or services.

    Earnings Per Share (EPS) Growth: EPS growth depicts s a company’s profitability per share over time. A consistent increase in EPS is a positive indicator of financial health and operational efficiency.

    Return on Equity (ROE): ROE measures a company’s ability to generate profits from shareholders’ equity. High ROE indicates efficient use of equity capital. For example,

    Price-to-Earnings (P/E) Ratio: The P/E ratio compares a company’s current share price to its per-share earnings. A high P/E ratio suggests that investors expect high future growth. Companies like Alphabet and Netflix often have high P/E ratios, reflecting their strong growth prospects and market confidence.

    Free Cash Flow (FCF): FCF measures the cash a company generates after accounting for capital expenditures. Positive and growing FCF indicates a company’s ability to fund operations, pay dividends, and pursue growth opportunities. Nvidia for instance, generates significant FCF from its leading position in the GPU market, which is crucial for gaming, AI and data centres.

    These high growth companies often exhibit innovative product development, significant market share capture and strong management teams. Operating in high-barrier sectors such as technology, healthcare, and consumer discretionary, they maintain a strong competitive advantage and sustain high growth trajectories.

    However, the current global economic environment characterised by high inflation, fluctuating interest rates and geopolitical uncertainties have impacted large cap growth companies worldwide, facing challenges such as increased overall operational costs and higher costs of borrowing.

    Despite these challenges, the resilience and innovative capabilities of global large cap growth companies, such as Apple, Amazon, Alphabet, Microsoft, Meta and even Alibaba continue to attract significant investor interest, positioning them as key players in the long-term growth narrative.

    These companies are known for their innovative product development and consistent year-on-year market share growth. Their significant market influence allows them to attract top talent and invest heavily in research and development, driving innovation and future growth. They are also usually led by strong management teams and operate in high-barrier growth sectors like technology and consumer discretionary.

    Investing in global large cap growth equity funds offers several benefits. These funds provide investors with the opportunity to gain exposure in the growth of industry leaders with proven track records of performances, and have historically demonstrated the ability to innovate and adapt to changing market conditions ensuring sustained growth and profitability to the investors.

    Additionally, large cap growth companies often have access to considerable capital resources, enabling strategic expansions and acquisitions to enhance their growth potential. For instance, Apple’s extensive product ecosystem and Amazon’s e-commerce and cloud computing dominance illustrate these advantages.

    Despite their advantages, global large cap growth funds face several limiting factors. Maintaining high growth rates becomes increasingly challenging as these companies scale. They can be subject to greater regulatory scrutiny, which can lead to higher compliance costs and operational constraints. Market saturation and increased competition can erode market share and profitability.

    Furthermore, their reliance on continuous innovation requires substantial research and development expenditures, which may not always yield expected returns. For example, Meta faces intense regulatory scrutiny and competition in the digital advertising space.

    Professionally managing a portfolio of global large cap growth companies involves navigating various challenges. Portfolio managers must continuously monitor and analyse macroeconomic indicators sector trends, and individual company performances to make informed investment decisions. While balancing the pursuit of high returns with risk management is crucial, especially in volatile economic conditions.

    Maintaining diversification within the portfolio to mitigate sector specific risks while ensuring adequate exposure to high-potential growth stocks is  also a complex task. Active management requires staying updated on regulatory changes and technological advancements that could impact portfolio companies.

    From the Atchison Investible Universe , there were a total of 85 global large cap growth equity funds assessed as at 31 May 2024. With the average one-year return being 18 per cent, while the average  three-year return was 7 per cent. Below are the top performing funds over the one and three-year periods.

    GQG Partners Global Equity Fund

    GQG Partners Global Equity Fund aims for long-term capital appreciation by investing in high-quality, attractively priced companies worldwide, excluding those involved in tobacco. The fund seeks to exceed the MSCI ACWI ex Tobacco Index (AUD) by focusing on companies with sustainable long-term earnings growth available at reasonable prices. The strategic asset allocation is predominantly global equities (90-100%) with a minor portion in cash or cash equivalents (0-10 per cent) and emphasising a minimum investment horizon of five years due to the high-risk level associated with potential short-term losses.

    Munro Concentrated Global Growth Fund

    Munro Concentrated Global Growth Fund aims to maximize long-term capital appreciation by investing in a concentrated portfolio of growth-oriented equities from innovative and fast-growing companies worldwide, excluding Australia. The fund consists of 20-40 high-conviction positions and follows a disciplined investment process that includes a proprietary stop-loss review framework and specific price targets. The investment team, which also invests in the fund, focuses on companies with strong revenue and earnings growth, durability, ESG factors and robust management.

    Janus Henderson Global Research Growth Fund

    The fund aims for long-term growth of capital by primarily investing in equity securities chosen for their growth potential. The portfolio is built from high-conviction investment ideas identified by the fund’s sector specialists. The fund invests across all market capitalizations, styles, and geographies, excluding Australia, and it can have significant exposure to emerging markets.

    Will Arnost

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