T.Rowe Price

MENU

The misconceptions of growth investing
Taymour Tamaddon, Portfolio Manager
  • Read Time: 3 mins

As a Growth investor, perhaps the biggest misconception is that all our attention is, and should be, spent on finding the most dynamic, fastest growing, companies out there. This is obviously a large part of what we focus our efforts on – trying to identify early those dynamic, innovative companies that are on the right side of change. 

The biggest impact so far has been on small cap companies. Around 30% of companies listed on the small cap Russell 2000 Index are not making profits, and many of those firms were heavily funded by QE (the flow of money into biotechs has also been a factor here). However, if the Fed’s hikes are modest and controlled, there will be some negative impact on earnings, but it’s unlikely to be excessive.

However, there are two other Growth “buckets” where we also spend a great deal of time looking for opportunities. The first of these focuses on companies where we believe the market is underestimating the durability of growth. For example, we might like a company that is expected to grow at 10-15% per annum. In this instance, we don’t necessarily think that the company is going to surprise the market and grow by 20-25%. It is simply that we believe the potential runway for growth is much longer, more durable, than the market is anticipating. Instead of growing at 10-15% for three or four years, we might think it can continue at this rate for 10 years. 

The third bucket in our Growth framework is made up of companies that are positioned on the wrong side of change, but which, through either self-innovation or market changes, can find themselves on the right side. Not only do these companies subsequently grow at a faster rate, they also experience multiple expansion, i.e. investors willing to pay a higher price for expected increased future earnings.  

From a Growth perspective, one of the potential influences that I focus on is inflation expectations. Historically, a relatively low, stable inflation environment has seen Growth investing do very well. This is the environment we are currently in, and that is expected in the near term, but I am always looking for any changes in the outlook. So, I am also very focused on interest rates. 

Finally, I am constantly watching for any early signs of recession. Historically, Value has significantly outperformed Growth during recessionary periods. One of the obvious signals of heightened risk seems to be when a misallocation of capital is evident, i.e. market bubbles. So far, I don’t see any obvious large pockets of misallocated capital.  

  • Category: Our thinking
  • Tags: Thematic
CISI CPD Logo
To earn 20 mins of structured CPD, read this article and complete the short assessment on Adviser Home.
Complete assessment >

Sign up for US equity insights from T. Rowe Price

Share this article:

Share on linkedin
Share on email
T.Rowe Price 2020 Election Blog
US Flag

Election 2020

Our US Political analyst reports from Washington on the campaign trail, see our insights into the impact of the election on your investments.
LEARN MORE

Important Information

For professional clients only. Not for further distribution.

This material is being furnished for general informational purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, and prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.

The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.

Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources’ accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date noted on the material and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.

The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material and in certain countries the material is provided upon specific request.

It is not intended for distribution to retail investors in any jurisdiction.

This material is issued and approved by T. Rowe Price International Ltd, 60 Queen Victoria Street, London, EC4N 4TZ which is authorised and regulated by the UK Financial Conduct Authority. For Professional Clients only.

© 2019 T. Rowe Price. All rights reserved. T. ROWE PRICE, INVEST WITH CONFIDENCE, and the bighorn sheep design are, collectively and/or apart, trademarks or registered trademarks of T. Rowe Price Group, Inc.

201911-1019425

You might be interested in…

SEE ALL

See our comprehensive range of US equity funds

Learn more

Issued by T. Rowe Price International Ltd, 60 Queen Victoria Street, London EC4N 4TZ which is authorised and regulated by the UK Financial Conduct Authority.

T. ROWE PRICE, INVEST WITH CONFIDENCE and the bighorn sheep design are trademarks or registered trademarks of T. Rowe Price Group, Inc. in the United States, European Union, and other countries. All other trademarks are the property of T. Rowe Price or their respective owners.

© Copyright 2006-2020, T. Rowe Price. All rights reserved.

Thank you for registering for US equities updates. The latest insights will be sent straight to your inbox, in the meantime access our latest thinking:

Our Thinking

Important Legal Information

This site is intended for financial intermediaries in the United Kingdom. I have read the terms detailed below and confirm that I am a financial intermediary and that I wish to proceed. By accessing this website, you consent to T. Rowe Price collecting information by way of cookies.

Information contained in the T. Rowe Price website is not intended for investors in any jurisdiction in which distribution or purchase is not authorised, including the jurisdiction of the reader of this information, where applicable. For example, the information herein is not for distribution to and does not constitute an offer to sell or the solicitation of any offer to buy any securities in the United States of America to or for the benefit of United States persons.

Information obtained from this site is intended specifically for the individuals who have agreed to these Terms and Conditions and may not be redistributed without prior consent from the T. Rowe Price Legal department.

The information is designed for professional investors, including financial intermediaries or members of the media, and is published for informational purposes only. In particular, the information is directed at only informing persons falling within one or more of the following categories:

(a) A government;
(b) A bank or insurance company;
(c) A pension fund or charity;
(d) Persons whose ordinary activities involve them, as principal or as agent, in acquiring, holding, managing or disposing of investments for the purposes of a business carried on by them or whom it is reasonable to expect will, acquire, manage or dispose of investments for the purpose of such a business;
(e) Persons whose ordinary business involves the giving of advice, which may lead to another person acquiring or disposing of an investment or refraining from so doing;
(f) Representatives of the media for corporate and background information about T. Rowe Price.

Persons who do not fall into one of the above categories should not act upon the information contained herein.

Certain persons may have access to information regarding the T. Rowe Price Funds SICAV, an investment company incorporated as “Société d’Investissement à Capital Variable” (‘SICAV’) under the laws of Luxembourg and the T. Rowe Price Funds OEIC, an open-ended investment company (‘OEIC’) incorporated in England and Wales. The sub-funds referred to on the site are only offered by the current prospectus. The prospectus contains more complete information about the sub-funds, including investment objectives, charges and expenses. However, the prospectus and other information relating to the sub-funds will not be intentionally distributed to persons in any country where such distribution would be contrary to local law or regulation.

Past performance is not a guide to future performance. The value of securities and any income generated from them might decrease as well as increase. Changes in rates of exchange may also have an adverse effect on the value, price or income of securities. Investors should also be aware of the additional risks associated with investments in emerging markets, high yield securities and smaller companies.

This information herein does not constitute investment advice and the products described may not be available to or suitable for all investors. You should consider, if appropriate, obtaining independent professional advice before making an investment decision.

Unless otherwise noted, the content appearing in this Section of the T. Rowe Price website has been issued by T. Rowe Price International Ltd, 60 Queen Victoria Street, London EC4N 4TZ, which is authorised and regulated by the U.K. Financial Conduct Authority with the reference number 194667.

I ACCEPT