Curious about Zevenbergen Capital’s investment perspective? Check out an excerpt from our quarterly client letter for our thoughts on 3Q21.
Zevenbergen Capital
3Q21 Equity Review & Perspective
Green Light, Red Light: Rising vaccination rates, a rebound in travel and impressive corporate earnings reports left markets poised for a cautious forward march early in the third quarter. Significant macroeconomic and geopolitical developments halted investor optimism near the 3Q21 finish line as global supply chain woes, unfavorable commodity cost movements and lingering coronavirus fears failed to deter the Federal Reserve from telegraphing its intention to reverse economic stimulative measures. A sharp selloff in the government bond market immediately followed suit, pushing Treasury yields to their highest levels in months and prompting a rotation from long duration growth equities into large cap technology “safe havens” and economically sensitive financials and energy companies.
Distractions Aplenty: Since the onset of the pandemic, “walls of worry” have been erected, dismantled, and re-built multiple times over. Social, political and economic disruptions have evoked lengthy debates over remote work, consumer spending, unemployment, stimulus and inflation, creating tug-of-war dynamics among growth/value and small/large-cap stocks. In less than a two-year span, global economies shifted from cruise control, to a near-stop, to full-speed ahead, adding stress to supply chains and labor markets. Sentiment has fluctuated between two extremes, highlighting the risk in drawing broad conclusions from often erratic market movements. While cognizant of macroeconomic conditions, ZCI continues to channel focus on corporate fundamentals, the ultimate gauge of share price performance in our view. Pandemic-accelerated demand not only reshaped economies and pulled forward adoption for many companies, but provided management teams valuable reinvestment capital used for strengthening operational infrastructures, product portfolios and employee ranks, setting compelling stages for long-term growth potential. Good companies achieve short-term targets, great ones focus on long-term, durable growth, consistently leveraging lessons learned (from successes and struggles) to adapt, innovate, and build at increasingly larger scale. Navigating uncharted waters has never been a linear path, but history reminds that if you can tune out the noise, opportunity is always ready to be discovered.