As Highlighted by T. Rowe Price Chief Investment Officer, David Giroux
I had the pleasure of sitting down with David this past week in a small group meeting in Baltimore. In addition to CIO, he is also the lead portfolio manager for the T. Rowe Price Capital Appreciation Fund, a fund we invest in for our clients. I call David’s approach to investing, “smart risk”. While the strategy favors US equities, it also is flexible. If David and his team cannot find bargains in the stock market, they play defense. Over time, the results have been steady and have left his peers in the dust. David’s fund ranks consistently in the 1st to 3rd percentile for the past one, five, and ten year periods for performance vs. similar funds*.
What’s on his mind now? Giroux and his team are laser focused on what they believe is a dangerous risk to investors – secular disruption. New competitive forces, technological advances and changes in customer habits are disrupting many business models. Think about what Amazon has done to traditional brick and mortar shopping. Secular disruption like this is occurring in many different industries including cable, media, energy and technology. The pace of change has been accelerating. David discussed how when he started with T. Rowe Price over 20 years ago, very few companies faced this risk. Fast forward to today and he estimates that over 30% of the market capitalization of the S&P 500 (large cap stocks) is challenged by disruption. David believes in the next three years, it could be north of 40%.
This trend has many implications for investors. New companies with disruptive technologies will offer investment opportunities for the astute investor. At the same time, the ability to identify the next round of secularly challenged stocks before the market does is vital. The “do it yourself” investor who likes to pick stocks needs to realistically evaluate his or her ability to compete in this environment. The days of buying a stock and holding it forever may not work as well as it did for past generations. Considerable time and effort will need to be devoted to research and analysis. Access to industry and company specific expertise are even more important to due to the rapidly changing landscape. Absent these tools, the “do it yourselfer” may be better off transitioning the portfolio to professional management.
*Source: Morningstar, Inc as of 2/17/2019. This is a not a recommendation to buy or sell a security. Past performance is not a guarantee of future performance.
Jon Giordani, CFA
Chief Investment Officer at PSG