Zevenbergen Capital
2Q23 Equity Review & Perspective
Green shoots of optimism broke through market and economic uncertainty during the quarter, which featured regional bank liquidity issues, the Federal Reserve’s 10th interest rate hike since March 2022, persistent inflation, and the U.S. debt ceiling debate. Through bouts of volatility, domestic equity markets eventually processed these events in a positive light. The government’s response to restore confidence in the U.S. banking system eased concerns of contagion while bipartisan lawmakers found a debt resolution that avoided default. In corporate America, management teams continue to prioritize profit improvements in the wake of rising costs of capital. Many have also been reinvigorated by breakthroughs in artificial intelligence (AI) software development and the potential for productivity enhancements and new market opportunities. Some industry analysts have gone so far as to predict that AI will manifest a modern Industrial Revolution, with the technology having the same or greater impact on global growth as the steam engine, automobile, and personal computer. Companies we follow generally cited solid demand for goods and services with a continued focus on improving efficiency and profitability through the “rightsizing” of headcount, a heightened prioritization of research budgets and the potential adoption of AI applications.
“Past performance is not indicative of future results.” The twists and turns of recent social, economic, and political events counsel ZCI to remain focused on its forward-looking investment philosophy and process. 2023 has unfolded as a “Year of Efficiency”, with companies of all sizes bracing for tighter capital conditions and turning to technology to boost productivity. Investing in a post pandemic, greenfield environment is exciting but requires discipline and tools to sharply focus on emerging secular growth opportunities with true revenue and earnings potential. After dramatic multiple compression and guidance resets in 2022, positive estimate revisions this year have been a welcome improvement. Despite the prospect of a low-growth environment, a slowdown in economic and Fed policy rate of change should allow investors to refocus on fundamental business trends, where well-managed and capitalized growth companies with demonstrable execution can further differentiate themselves. Change is the only constant in life and markets, and each transformation opens a window to wealth creation opportunities.
