New Emerging Market – Growth Stocks

Presented by the Hardee Investment Group and RBC Wealth Management

The past decade has been highlighted by fear and the search for yield. As money markets and CD rates have dropped toward zero, this has further exacerbated the rush into bonds and dividend-paying stocks, which are usually considered to be value stocks. Our portfolios have been major beneficiaries of this trend. They have served us well, even though Enron and the financial meltdown in 2008 rocked the boat. However, as Bob Dylan said, “For the times they are a-changin.’’ Over the past year, two of the top performing industries have been technology and biotechnology, which are growth stocks, while the “value” stocks, such as utilities and real estate investment trusts, were some of the worst performers for 2013. Last year, the S&P 500 was up 28.9%. It didn’t come from the traditional value stocks.

In the world of investing, when it becomes obvious, it’s obviously too late. The hardest part about investing is anticipating future events and what could change. Because it hasn’t happened yet, many times one can look like the “village idiot” as we wait for future events to unfold and current news dominates our thoughts.

So why should we want to underweight yield and invest in growth? Some potential reasons:

1) Rising Interest Rates – Rising rates could wreak havoc on bond portfolios and dividend-yielding stocks.

2) Rising Earnings – Growth companies should benefit over “yield” companies because of rising earnings.

3) Improving Economy – An improving economy could cause the fear or “bunker mentality” to fade and  optimism to re-appear, which favors growth.

As we’ve written before, according to Standard & Poor’s, the last decade was the worst decade to invest in equities in the last 100 years. The good news is that decades usually don’t repeat. However, we have been “brainwashed” to shoot first and ask questions second. If the last decade was about yield and safety, it stands to reason that this decade will be about growth. This sounds absurd today given what is happening with Europe, China and the world economy. Remember, when investing, it’s never obvious at the beginning. Conventional wisdom among the majority of investors has never led to investment success.

In 2013, yield stocks, such as utilities and real estate investment trusts (REITs), have substantially underperformed. Underweight this area and concentrate on chemicals, technology, biotechnology and other “growth” industries driven by cheap and plentiful energy. Of course, it won’t be obvious until later, and you can’t benefit unless you anticipate change. We suspect “the times they are a-changin.’”


 This article is provided by H. H. Will Hardee, AWM, a Financial Advisor at RBC Wealth Management. The information included in this article is not intended to be used as the primary basis for making investment decisions. RBC Wealth Management does not endorse this organization or publication. Consult your investment professional for additional information and guidance.