U.S. Equities Remain Valuable Options, Goldman Says

With the future of the economic environment remaining uncertain, investors are reevaluating what factors to prioritize when seeking large-cap opportunities.

In finding opportunities for investment, U.S. equities remain a solid choice. That’s according to Sarah Rich, vice president and lead portfolio manager at Goldman Sachs, who participated in VettaFi’s Equity Symposium on March 13.

“We do believe that U.S. equities continue to continue to remain attractive for several key reasons. No. 1, the U.S. represents 26% of global GDP. No. 2, we have the highest labor productivity in the world. And No. 3, persistent and diverse corporate earnings growth are a hallmark of U.S. equities,” Rich explained.

Past and Present

Along with present-day indicators, there is some historical precedent to keeping U.S. equities in a portfolio. Rich noted that U.S. equities have shown solid growth over the years. That’s despite periods of economic strife such as the global financial crisis.

While evaluating exposure to large-cap U.S. investments, Rich believes market-cap-weighted benchmarks can be backward-looking in nature, overweighing stocks that are overvalued while underweighting undervalued stocks. She noted that investors could risk underperformance by choosing to not invest in the top names in the market, as well as the danger of deviating from the benchmarks.

“Some other things to note among the mega caps is that dispersion of returns is actually at a 10 year high. It’s around 160% above the 10-year average,” Rich said. “So, in theory, that means when you get it right, you can really knock it out of the park. But we know that this is incredibly difficult to do in practice.”

Allen Bond, managing director and head of research at Jensen Investment Management, also participated in the panel. He agreed with Rich that investors who choose not to engage in large-cap U.S. investments face a great deal of risk.

Quality Investments

When it comes to investment focus, Bond believes that looking at high-quality businesses is the key to success. “Our goal is to identify businesses that we think can grow and create business value, and then to participate in that value creation as long-term investors. So, our focus is on factors that we think are going to lead to sustainable business value creation,” he noted.

Looking at how equity managers have historically performed around the S&P 500, Rich prefers a smart beta approach: “We favor a systematic smart beta approach in the U.S. large-cap space, where we take a large number of very small strategic tilts that are grounded in over 40 years of research on factor performance across a variety of different market regimes.” 

One such ETF is the Goldman Sachs ActiveBeta US Large Cap Equity ETF (GSLC).

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