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January 2024



Core Equity:
Secular Themes –More Than Meets the Eye




Tom Galvin Chief Investment Officer
Amy Chen Director

Key Points

  • Digital revolution remains a key secular theme.
  • Focus includes non-tech specific industry beneficiaries of digital revolution.

For over a decade, we have used a thematic investing approach based on our belief that wealth creation is best achieved by focusing on secular themes mega trends, if you will — that have the potential to grow at a faster pace than the economy. We then seek to identify companies selling at reasonable valuations that are best positioned to capitalize on these trends, and we seek to hold these stocks for many years. One of those key themes has been the digital revolution. At first glance, our flagship Core Equity strategy has been modestly underweight in the technology sector compared to the S&P 500, which might give one the impression that we do not like tech stocks, when just the opposite is true.  

In line with our digital revolution theme, software and services remain our favorite industry group.  Companies in this industry provide key enabling technology for corporations and consumers, such as ecommerce, cloud computing and digital payments, and we expect artificial intelligence will serve as application enhancers for the companies that have the financial resources, scale and breadth to invest for the long term. As these companies invest to gain a competitive advantage, the demand for advanced semiconductors should also be robust over the next several years. During the course of 2023, we broadened our exposure to companies best positioned, in our view, to capitalize on this trend. 

There are ways to capitalize on digital revolution trends in non-tech-specific industries as well, through what we call derivative plays. For instance, when major software and service companies increase their spending, it leads to a higher demand for advanced graphics processing unit (GPU) chips. This, in turn, increases the demand for semiconductor plants, which leads to an increased demand for air purification systems sold by industrial companies. The energy consumed by these air purification systems to build the chips adds to the demand for electricity by data center providers, which could be classified in the REIT sector, creating opportunities for industrial companies that can upgrade the power grid. We deploy this process of portfolio construction to add digital revolution exposure, not only in our flagship Core Equity Strategy but also in our Aggressive Core Equity strategy, where we own additional companies that, we believe, have more aggressive growth outlooks.

Chart 1: Index vs. Strategy Weights

FactSet, as of December 29, 2023.
Information is subject to change and is not a guarantee of future results. Indices are unmanaged, and one cannot invest directly in an index.



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