While inflation and rising interest rates could drive near‑term volatility in equities, these short‑term challenges don’t reduce the long‑term opportunities derived by the transition to the cloud and the rise of e‑commerce and online advertising, according to a recent white paper issued by T. Rowe Price.
Paul Greene, portfolio manager of the T. Rowe Price Blue Chip Growth ETF (TCHP ) and author of the paper, notes that the fund’s investment strategy is to discern the durable from the temporary, and remains focused on buying and holding the special companies that T. Rowe believes can compound in value over time.
“The rapid innovation and disruption occurring across industries, coupled with a market that is digesting dislocations stemming from the coronavirus pandemic and a flood of central bank liquidity, mean that differentiating between volatility and actual business risk is more critical than ever for growth investors with a longer time horizon,” writes Greene.
One investment theme that Greene argues “has significantly more room to run” is the “transition to cloud computing,” which he argues is “thanks to a large addressable market and forward‑thinking management teams that invest in innovation.”
“In an increasingly digital world, cloud‑based software solutions are critical for companies across the economy to maintain their competitiveness and tend to drive productivity gains,” Greene writes, adding that while “the sales environment may have become more challenging for some software companies in the near term, we believe that the coronavirus pandemic reinforced the business case for these investments.”
T. Rowe also sees e‑commerce and targeted online advertising as markets with the potential to grow substantially, despite such headwinds as increased regulatory focus on consumer privacy and policy changes by gatekeepers like Apple. The ETF issuer sees such challenges “as transitory and believe that the long‑term trend favors internet companies with direct relationships with consumers and a wealth of first‑party data.”
In addition, the fund manager is also seeing “opportunities among the emerging stack of modular e‑commerce solutions that help businesses sell their products online.”
“As markets have penalized some digital services companies amid concerns about persistent inflation and rising interest rates, it is instructive to revisit why we believe some of the key secular growth trends should drive value creation in the coming years,” Greene writes. “In our view, our edge comes not from investing behind the themes themselves but from leveraging our in‑depth understanding of individual companies and industries as we seek to identify compelling ideas where we have a differentiated view from the broader market.”
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