Last year ended on a high note for US stocks, which were in their third year of double-digit returns. Large caps were up over 20% and the S&P 500 was up over 100% over three years. However, 2022 has presented a more challenging environment. While pandemic-related risks have reduced, new headwinds such as inflation, rising interest rates and geopolitical tensions are affecting investors’ sentiment.
US equity markets have responded by rotating favour between value and growth. Except for the first quarter of 2021, when value outperformed, growth was the clear winner. Yet today, value stocks are once again outperforming as investors try to shield themselves from rising inflation and geopolitical instability. We expect markets to continue this relay, passing the baton between value and growth.
Looking ahead, we believe investors should look beyond immediate headwinds and consider the long term. It is therefore now more important than ever to focus on high-quality businesses with durable competitive advantages, which will provide stability should economic fundamentals deteriorate, or uncertainties escalate further. Our trust provides this balance through a diverse selection of high-quality value and growth names, which we believe will perform well over the long term.
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Finding value in banking and timber
On the value side of our portfolio, we remain overweight in financials. Bank of America (NYSE: BAC) is an example of a bank that has benefited from a favourable macroeconomic environment and has continued to report strong results in spite of headwinds. We remain confident in the ability of management to grow margins through efficiency improvements, and the diversity of its business mix is another reason we like this company.
Similarly, Weyerhaeuser (NYSE: WY), one of the largest timber real estate investment trusts (Reit), has been the biggest beneficiary of the increase in global demand for timber. It is one of the largest private owners of timberlands in North America, with about 11 million acres, and managing an additional 14 million acres under long-term licences in Canada. The company manages these timberlands on a sustainable basis in compliance with internationally recognised forestry standards.
Innovation in agriculture and health
Through our growth portfolio, we are optimistic about progressive industry leaders that are investing in cutting-edge technology and artificial intelligence (AI). One such example is Deere (NYSE: DE), a global leader in the production and distribution of agricultural equipment, including tractors. The company is developing innovative technology, including the use of machine learning and AI, to increase productivity significantly. This development has strengthened Deere’s competitive leadership and should help to strengthen its long-term pricing power and profitability.
In healthcare, Intuitive Surgical (Nasdaq: ISRG) is the dominant market leader in robotic surgery, currently maintaining 79% of the global market. Through its flagship Da Vinci robot, Intuitive provides surgeons with 3D, high-definition views of the operating field and use of machine-manipulated instruments for smooth precision. These minimally invasive procedures benefit patients by ultimately reducing recovery times.
Timothy Parton is investment manager of the JPMorgan American Investment Trust
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