Curious about Zevenbergen Capital’s investment perspective? Check out an excerpt from our quarterly client letter for our thoughts on 2Q21.
Zevenbergen Capital
2Q21 Equity Review & Perspective
The “i-word” (inflation): After rewarding high growth handsomely in 2020 and early 2021, equity markets swung aggressively toward cyclical and value-based strategies in 2Q21. Chief among the reasons for the rotation is competition amid a thriving economy (recent indicators expanded at the fastest rate since WWII), during which cyclical earnings growth is outpacing, temporarily, secular growth. The robust rebound is producing a potentially troubling side effect: inflation. Year-over-year price increases are higher in part because of low, pandemic-induced comparisons from 2020, as well as supply constraints coinciding with an unleashed torrent of demand. The debate continues on how long the trend will persist; however, the unanticipated pace/strength prompted the Fed to hint at tightening monetary policy sooner than anticipated. The prospect of serious inflation should have crushed the bond market, yet U.S. treasuries registered their best week in a year, potentially signaling acceptance that higher inflation may prove transitory. Growth stocks ignited once again with the fall in yields, reversing value’s dominance.
Kong vs. Godzilla: The epic showdown between two iconic investment rivals (value and growth) clearly played out in 2Q21, as each landed powerful blows and scored their share of points, pleasing respective fans. There was a lot of shock and awe, but for greater clarity on “style” sustainability, a look toward the future is required. Value’s recent ascendance has been driven by a unique mix of circumstances, including vaccine rollouts and unprecedented levels of fiscal and monetary stimulus, which are enabling the economy to rebound more quickly than anticipated. (These factors may shortly run their course.) Meanwhile, a wave of digital innovations (cloud computing/warehousing/optimization, robotic process automation, decentralized finance and global ecommerce/fulfillment) continues to transform and build productivity in businesses across the globe. It’s not hyperbole to say that the world was changed in many ways by the events of 2020. The continuation of this historic digital migration underscores and defines the decade ahead for growth investing. The continuous evolution and widespread adoption of software are helping a multitude of industries, allowing users and enterprises to connect, create and achieve more than what was previously possible. The new reality is that every company may become a digital, software powered company, creating bright opportunities to invest in evolving change.