Curious about Zevenbergen Capital’s investment perspective? Check out an excerpt from our quarterly client letter for our thoughts on 1Q22.
1Q22 Equity Review & Perspective
The Fog of War: Mounting Russia-Ukraine tensions weighed heavily on global stock markets early in 1Q22, with wild volatility pushing indices to correction and bear market levels. As the “imminent invasion” became a reality, commodity prices surged (preceded by the highest inflation readings in 40 years), with oil breaching $130 per barrel. The invasion abruptly transformed the world, and a new Iron Curtain was hung in place, as global economic sanctions were imposed against Russia, unnerving investors and throwing forecasts into doubt. Risk appetite withered under the combination of a possible prolonged conflict and U.S. central bank intentions to tame rampant inflation. The scale of wealth destruction for high growth, technology and small cap stocks (which began in November) was profound. In dollar terms, the Nasdaq Composite lost over $5 trillion in value, more than the dollar losses through the entire dotcom bubble unwinding in 2000-02. Equities regained some footing after direction from the Federal Reserve (quarter-point rate hike and signaling of a potential extended campaign), but not enough to neutralize the quarter’s steep decline (the epicenter of pain was in ravaged technology and growth stocks). During periods of epic volatility, ZCI approaches the investment path with a high degree of both humility and simplicity. No one has privileged access to the future and specific outcomes from current uncertainties are unknowable. What we do know is that even after a strong rebound, many portfolio holdings remain significantly lower year-to-date, representing an attractive opportunity to own secular growth at reset valuations. ZCI, like the market, looks ahead. Imagining what can go right is our perennial perspective, rather than the inclination to anchor a point of view based on recent events. We remain committed to secular growth opportunities (those that are relatively immune to economic cycles and less impeded as the Fed moves onward with interest rates). The magnitude and duration of a potential downturn will ultimately be determined by the health of the overarching economic cycle. And by that measure, the U.S. is one of the best houses on the block.
Not Lost in Translation: Let’s be clear, war is cruel and horrific. Evidence from the past century of financial history, however, indicates it would be impulsive to assume that war is detrimental to stock prices. With more than 50 crisis events over the past 100 years (WWII, COVID-19, etc.), a pattern emerges. After the initial shock and tumble, indices rebound. It may seem heartless and bizarre, given that these events typically unleash geopolitical uncertainty and inflationary spirals. The pandemic and aftermath produced some of the best and worst performance extremes in the history of ZCI. Just as Omicron began to fade and global economics were
rebounding, a military and humanitarian crisis began. Given the potential to reverberate, macro developments deserve notice; however, investment decisions should not be based on outcomes that cannot be measured. Recent events prove that ZCI’s work is never done. We remain relentless and persistently inquisitive about factors that are most likely to affect each company’s outlook. This period presents the need for patience and calm and a steadfast assessment of businesses investing towards a bright future that lies ahead. #SlavaUkraini!