The traditional question of whether to lean into growth or value stocks has no straightforward answer today. Value historically has had an edge in inflationary environments, while growth is typically preferred in a recession.
With the risks of persistent inflation and impending recession both at play, we believe the best course is to build both growth and value into portfolios, a view we detail in our latest market outlook.
Yet growth stocks have been particularly challenged by rising rates, leaving investors bruised and uncertain about the path forward. Phil Ruvinsky, a stock picker in the growth space for 20 years, is optimistic for the long term and preparing his shopping list for the shorter term. Here he addresses five key questions about growth stocks:
Is this the time for growth stocks?
We believe there is always a place for growth stocks in a portfolio, and their long-term track record is a strong endorsement. Over the past 10 years, the Russell 1000 Growth Index has provided an average annual return 2% above the broader Russell 1000.
This year brought the first sizeable challenge for the growth style in over 10 years. Some repricing was warranted, such as cases of COVID-inflated earnings that were not sustainable or businesses lacking a path to profitability. But there was also indiscriminate selling that has created some great opportunities for stock pickers.
Many growth stocks have regained more than 20% from their June bottoms, but we still see attractive entry points into businesses with exciting long-term prospects. The key is to be selective and risk aware, particularly in this highly uncertain macro environment. Our experience has shown us that entry points like some we’re seeing today can reward patient investors.
How do you manage through drawdowns or high volatility?
These are times when we focus in on our highest-conviction positions. That means selling more stocks than we buy. We tend to add to our top 10 to 20 positions while also shopping for new ideas ― seeking companies that have been unduly punished.