Curious about Zevenbergen Capital’s investment perspective? Check out an excerpt from our quarterly client letter for our thoughts on 4Q20.
4Q20 Equity Review & Perspective
A Real Shot in the Arm: At the outset of 4Q20, equities retreated (even mega-growth stocks, thought to be almost immune to the economic effects of the virus), as global COVID-19 cases climbed, and lack of stimulus progress weakened investor enthusiasm. The brief pullback reversed on promising vaccine news, providing light at the end of the pandemic tunnel. After posting several false starts over recent years, value indices topped growth for the quarter, as optimism increased regarding the “re-opening” and an economy potentially reclaiming strength. (Strong, double-digit returns for both styles during the quarter proved growth and value can peacefully co-exist.) Armed with the knowledge that we would eventually emerge from the long, dark winter, the task at hand requires separating investments in a definitive way: those that have been COVID-19 beneficiaries and ones with lasting secular tailwinds, intensified during this period. Stepping back, one of the bigger epiphanies for 2020 (and lasting impact of the crisis) is the remarkable acceleration of the digital transformation. For those companies that crossed the digital divide, growth dynamics were thrust into overdrive.
Growth is dead, long live growth! This seemingly contradictory proclamation is timely, as predictions/ commentary regarding “the top” and “it’s over” reached all-time highs with each record market close. While it was an exceptional 2020 by any measure, the view of the future is no less uncertain than at the beginning of any year. Growth investing requires the willingness to “underwrite” the unknown future of companies. A successful investment strategy embraces and develops comfort with uncertainty, through ample research and diligence, reassured by business models guided by company founders and leaders. We believe today’s digital transformation is removing consumer friction, unlocking dynamic behavior and providing an exponentially better experience. Announcing the death of the previous investment reign provides transition towards the future: it is the dawn of a new Industrial Revolution, where significant investments are made in “intangible” vs. “hard” resources of past cycles. The slope of adoption may soften slightly from the sensational rise of 2020; however, the genie is out of the bottle. Industries may be left behind; some will stay behind. ZCI will remain loyal investors in those companies that solve problems, demonstrate resiliency and invest for longevity.