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A different type of barbell

If the pandemic has been offering any thematic takeaways, it might be that the so-called “stay-in” or “stay-at-home” stocks have shown resiliency and superior financial results versus the “go-out” themed companies. Yet for longer-term investors, it might be wise not to eschew all “go out” stocks. In fact, a barbell-approach to large-cap growth stock investing—one that includes both “stay-in” and “go-out” companies, may position investors well for a post-pandemic environment and beyond.                            

It’s easy to see how some large, secular growth companies have benefitted from accelerating trends brought on by the pandemic. For example, companies offering video conferencing, e-commerce platforms, and cloud computing solutions have fared better than most in this unprecedented environment, certainly compared to travel and leisure companies, brick and mortar retailers, casual dining, and oil drilling companies. These “go-out” stocks are more dependent on a physical presence and/or a cyclical upturn.

Thus, as states continue to reopen (and hopefully stay open), some “go-out” stocks appear poised to outperform. Favorable headlines regarding COVID-19 treatments or vaccines, as well as the potential for additional fiscal stimulus, suggest that a rotation into certain “go-out” may be underway and continue.  

The battle between these two groups will likely be contingent on economic growth data, bond yields, inflation trends, currency valuations, COVID-19 headlines, and other factors. And in the end, the trajectory of the pandemic will determine when full economic activity can resume. Although significant risks remain, we remain optimistic that the country (and global economy) will recover and return to better times. Thus, it is important to position the portfolio for the current environment but not at the expense for what comes after.

In general, the same rules apply in evaluating both “stay-in” and “go-out” categories. Market leaders with experienced management teams, financial strength and poised for sustainable revenue and earnings growth are preferred. The mega-cap tech companies have been the obvious leaders through this pandemic, but in any return to normalcy, companies associated with off-price retailing, ridesharing, elective surgeries, and cross-border transactions may represent a few of the more compelling “go-out” businesses. 

We live in a dynamic world where economic data, corporate news, and geopolitical shocks can happen overnight. In addition, exogenous factors—including the November elections, global trade policy, future Fed decisions, Congressional action, the yield curve, the value of the U.S. dollar, inflation/deflation trends, and the scale of any regulatory action on large technology/e-commerce companies—can shift sentiment overnight and even alter the earnings prospects of individual companies. This is where an active approach should excel. 

Ultimately, we believe that allocating between “stay-in” versus “go-out” stocks is not an either-or proposition. It is important to own companies that have benefited during the pandemic, while also consider those that will re-emerge once we cross the chasm back to more normal times. 

 
©2020 Victory Capital Management Inc.

20200908-1321936

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Investments involve risk including possible loss of principal. The value of the equity securities in which the fund invest may decline in response to developments affecting individual companies and/or general economic conditions. Dividends are never guaranteed. International investing involves special risks, which include changes in currency rates, foreign taxation and differences in auditing standards and securities regulations, political uncertainty, and greater volatility. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. You may lose money by investing. There are no guarantees the funds will achieve their investment objectives and strategies may be unsuccessful.

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ETFs have the same risks as the underlying securities traded on the exchange throughout the day. Redemptions are limited and often commissions are charged on each trade, and ETFs may trade at a premium or discount to their net asset value. There can be no assurance that an active trading market for shares of an ETFs will develop or be maintained. The ETFs are not actively managed and may be affected by a general decline in market segments related to the Indexes. The ETFs invest in securities included in, the Index, regardless of their investment merits. The performance of the ETFs may diverge from that of the Indexes. 

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Judgments about a particular security, markets or investment strategy may prove to be incorrect and may cause an actively managed ETF to incur losses.


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Content on Xchange, the Victory Capital Blog, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date posted and may change as subsequent conditions vary. The information and opinions contained in each post are derived from proprietary and non-proprietary sources deemed by Victory Capital to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. This material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.

This material does not constitute a distribution, offer, invitation, recommendation, or solicitation to sell or buy any securities; it does not constitute investment advice and should not be relied upon as such.  Investors should seek independent legal and financial advice, including advice as to tax consequences, before making any investment decision.

Victory Capital means Victory Capital Management Inc., the investment adviser of the Victory Capital mutual funds, USAA Mutual Funds, VictoryShares ETFs, and VictoryShares USAA ETFs. Victory Capital mutual funds and USAA Mutual Funds are distributed by Victory Capital Services, Inc. (VCS). VictoryShares ETFs and VictoryShares USAA ETFs are distributed by Foreside Fund Services, LLC (Foreside). VCS and Foreside are members of FINRA. VCS and Victory Capital are not affiliated with Foreside. USAA is not affiliated with Foreside, Victory Capital, or VCS. USAA and the USAA logos are registered trademarks and the USAA Mutual Funds and USAA Investments logos are trademarks of United Services Automobile Association and are being used by Victory Capital and its affiliates under license.

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