Over the last two years, markets have endured a global pandemic, war in Ukraine, rising inflation, and monetary tightening. But while the geopolitical and economic backdrop is driving market volatility, Scott Berg, portfolio manager for the T. Rowe Price Global Growth Equity Strategy, wrote in a white paper that, through active management, the firm can separate “the long‑term prospects of stocks from the short‑term narratives surrounding equities in what is a highly unusual period.”
According to Berg, the current economic and geopolitical environment requires pragmatism, not overconfidence. With markets changing dramatically in the first half of 2022, T. Rowe has created a stronger portfolio balance across sectors and re-confirmed each position in the portfolio. Its focus remains on “asymmetric, idiosyncratic, bottom‑up stock picking,” primarily in durable “special” growth compounders.
While the shift in market sentiment has pushed the money manager to raise the bar for higher‑valuation, longer‑duration growth stocks, T. Rowe plans to retain the disruptive businesses that can deliver outsized returns over the medium term. The firm is “also seeking to capitalize on market capitulation, where … ‘baby out with the bathwater’ scenarios can create attractive entry points for exceptional, long‑term growth businesses.”
With overall economic growth being increasingly scarce, being able to find profit growth is essential. Regardless of short-term market moves, fundamental earnings and cash flow growth remains a significant driver of stock prices over the long term.
Despite living in unusual times, the challenge of separating long‑term expected returns from short‑term narratives and concerns is not new. Volatility has historically presented opportunities, and T. Rowe Price sees a broader opportunity set now than it has for some time. Innovative, high‑growth companies are trading at more reasonable valuations, while idiosyncratic stock ideas untethered to broader market direction are also a focus.
“Geopolitical and macroeconomic uncertainty will remain part of the near‑term environment, but long term, stock prices are ultimately driven by fundamental earnings power and cash flow generation,” Berg wrote. “We believe that focusing on this is the best way to help navigate through one of the most complex market environments investors have experienced.”
As part of its lineup of active exchange traded funds, T. Rowe Price offers a suite of actively managed equity ETFs, including the T. Rowe Price Blue Chip Growth ETF (TCHP), the T. Rowe Price Dividend Growth ETF (TDVG), the T. Rowe Price Equity Income ETF (TEQI), the T. Rowe Price Growth Stock ETF (TGRW), and the T. Rowe Price U.S. Equity Research ETF (TSPA).
T. Rowe Price has been in the investing business for over 80 years through conducting field research firsthand with companies, utilizing risk management, and employing a bevy of experienced portfolio managers carrying an average of 22 years of experience.
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