Chautauqua Capital Management

A “soft landing” scenario is not so straightforward in the current context. We have emphasized companies that we believe have pricing power because of the mission-critical or value-add nature of their products and services.

Some of the most exciting growth areas pertain to strong secular trends, many of which are agnostic to the growth potential of any geographic region.

Given a potential inflationary environment and sell-offs in Chinese equities, we have taken great care to trim weightings in China, and we have made adjustments to reduce holdings with extended valuations and increase holdings that are well-suited to transmit pricing power or have more attractive valuations.

With respect to managing portfolios in an inflationary environment, we have taken great care to emphasize companies that we believe have pricing power due to the mission-critical or value-add nature of their products and services.

Given a potential inflationary environment, we have taken great care to emphasize companies that we believe have pricing power because of the mission-critical or value-add nature of their products and services.

While valuations are high across the market, on a relative basis, they are still most attractive for international stocks. The pandemic has delivered a global growth shock, but in doing so, it has accelerated the timeline for mega trends such as productivity enhancement (robotics, automation, and software), e-commerce, electronic payments, and rapid drug development.

We continue to experience an unprecedented market environment. We were able to again outperform in the third quarter, aided by the significant repositioning we had done in portfolios amidst the sell-off in March. However, we are wary of the risks to the market rally, including elevated valuation multiples...

The pandemic has delivered a global growth shock, but in doing so, it has accelerated the timeline for several mega trends that we have been actively investing in, such as productivity enhancement (robotics, automation, and software), e-commerce, electronic payments, and health care.

Up until almost every government announced “Big Bazooka” strategies to address the abrupt slowdown a quality-oriented portfolio outperformed. The stock market regime is likely to shift in the near term as massive government stimulus designed to prevent bankruptcy will do exactly that. Therefore, small businesses and poor-quality companies with dangerously high levels of debt will be bailed out.

Progress on the trade front lifted the markets in Q4 but now comes the hard part.

Valuation multiples have been stretched to the point that stocks have failed to go meaningfully higher even as interest rates have come down. This means that there will need to be a recovery in leading fundamental indicators, and not just rate cuts, before equity markets can rebound sustainably.

Trade tensions continue to plague confidence about the trajectory of economic growth. Trade tension-induced cost pressures, disrupted supply chains, capital tied up in excess inventories, and the uncertainty which impedes business investment plans continue to be headwinds.

Global markets enjoyed a strong start to the year, marking a steep reversal from the downdraft that maligned the fourth quarter. Weak or decelerating growth in virtually every major economy, coupled with lingering overhangs from international trade frictions, have compelled the major central banks to adopt stimulative policies for the foreseeable future.

Business uncertainty resulting from trade frictions will continue to put downward pressure on economic growth. As a result, investor confidence may remain fragile (recent price declines appear to reflect this). Concerns are unlikely to dissipate soon, but we contend that international growth stocks represent a good investment opportunity.

While President Trump often cites the massive trade deficit with China, the real issue in U.S.-China trade relations is not the headline number but the government policies that distort competition, including subsidizing state-owned enterprises, requiring technology transfers, constricting market access in certain industries, and even manipulating the yuan.