For growth investors and their advisors, the key question isn’t ‘what’s expanding?’ but ‘what’s changing?’ Baillie Gifford Partner Dave Bujnowski explains:
Thirteen years of growth stock outperformance came to a juddering halt thanks to war in Europe, post-pandemic supply chain shock, labor shortages and rampant inflation.
So, what’s next for clients interested in growth investing?
To answer that we need to look closer at the drivers of growth. It happens when the supply of a product or service meets demand. But neither supply nor demand is static. They’re powered by three different ‘engines’: expansion, disruption and replacement.
Which of these has driven growth in the past decade? And where might they take us in the future?
The expansionary growth engine revs up when demand for a product or service rises. This extra demand can come from macroeconomic causes such as low interest rates, or from innovations such as mobile apps.
Some expansionary growth engines are sputtering as macroeconomics become less friendly and the initial kick from the novelty of internet connectivity fades.
But other growth enablers of similar power are still emerging, offering new opportunities. The unearthing of new forms of data that unlocks solutions for problems never before addressed is one place to look. Where data meets healthcare is one potential expansionary engine.