During a cyclical market rally, the temptation to switch out of ‘Quality Growth’ (QG) and into Value to avoid missing the opportunity cost of a cyclical leg up is a strong impulse. In this article from our research team, Sudhir Roc-Sennett expresses our strong view on this trade and why we think it is not compatible with the promise of QG. During sharp market upswings, a QG manager who has promised a consistent style must resist the Sirens' Song of a short-term lift from top-down market timing.
We think of the QG promise as returns delivered over the long term from a bottom-up style, driven by investing into the growth of earnings and value of solid, well run and predictable businesses. Market timing is not a key part of the investment process. Not only are long-term holdings only bought once, but valuation multiples are range bound while earnings and dividends can grow for decades.
In Greek mythology, the song of the dangerous half-bird, half-woman Sirens lured sailors, who could not resist their enchanting music, onto the rocks and away from their original promise of sailing safely to port. The Greeks had an interesting message.