Speaking at the Australian Wealth Management Summit on Wednesday, Cassandra Crowe, vice-president at T. Rowe Price, explained that following a period of narrow markets and limited market leadership, the fog is dissipating, revealing a broader range of opportunities on the horizon.
Emphasising the recent dominance of the “Magnificent Seven” US large-cap tech stocks, which contributed significantly to market returns, Crowe highlighted indications of evolving market dynamics in the near future.
“I’m sure everyone here has heard of the Magnificent Seven. These are the US large-cap tech stocks that have been gaining attention … If we look at the All Country World Index, those seven stocks accounted for 35 per cent of the market return. And if we strip out those seven stocks, so we’re talking about Meta, Nvidia here, they delivered over the year of 2023, and first quarter of 2024, nearly a 100 per cent return.
“And you can compare that to the S&P 500 which delivered a return of less than 40 per cent. So, what we’re saying here is we’ve been in a very narrow market with narrow market leadership,” Crowe said.
“We feel as the fog lifts and we look forward, there’ll be a broadening set of opportunities.”
Crowe acknowledged that while these opportunities carry risks, she finds it encouraging to witness the market expanding.
From an industry perspective, T. Rowe sees exciting opportunities in several areas, including technology and healthcare.
Speaking particularly about the evolution of AI, Crowe explained it has spurred “an arms race” among companies to adopt these advancements, leading to significant productivity gains and improvements in servicing standards, with wide-ranging implications such as increased demand for chip manufacturers, data warehouses, and services that facilitate technology adoption.
Moreover, Crowe highlighted advancements in GLP-1 agonists – initially developed for Type 2 diabetes, now FDA-approved for treating obesity – hold potential wide-ranging impacts, addressing not only diabetes-related issues but also potentially aiding addiction, Alzheimer’s, and alleviating strains on the healthcare system.
“We feel the market is broadening with a wider net of opportunities that are not without risk, but are a widening set, which is exciting as we look forward,” Crowe said.
“And AI squared, artificial intelligence, artificial incretins, could shepherd in a new era. We say at T. Rowe Price, humanity always finds a way to the challenges ahead.”
She noted that these advancements translate into an increased opportunity to “put cash to work” as a wider range of opportunities emerge.
Aside from technology and healthcare innovation, from an asset allocation perspective, she highlighted fixed income.
“As yields have risen, fixed income is becoming an increasing part of your portfolio and there are really interesting pockets within fixed income. High yield, for example, is offering very good yields and at lower levels of risk than in the past. And that’s because a lot of the lower rated issuers have actually moved now into private markets,” Crowe said.
From an equity perspective, she explained emerging and frontier markets exhibit promising valuations compared to developed markets, although they come with risks, recognising that no two markets are identical.
Ultimately, Crowe underscored the significance of exercising “thoughtful and responsible” judgement in opportunity selection, alongside the necessity for active management.
Diversity of thought, she stressed, is also key.
“As we move into this ever-changing environment, we need to bring diversity of thought, we need all the different minds around the table as we think differently and problem solve,” she said.
“Secondly, investing on the right side of change, it has never been more important to actively manage your portfolio to embrace opportunities, and manage the risks that are ahead.”
The Australian Wealth Management Summit was held by Momentum Media‘s financial services brands. For more information, click here.
