Some growth stocks, such as Big Tech, have largely performed well since the start of 2023, but performance has been mixed. Most of the “big seven” stocks drove the S&P 500’s gains. In fact, growth stocks overall have experienced a “very difficult time” in 2022, and some funds have yet to fully recover, said Nick Griffin, chief investment officer and founding partner of Munro Partners. “We’ve had one of the worst growth losses since the dot-com bust, and a lot of growth managers … haven’t gotten back to their previous highs,” he told CNBC Pro. “What it does is it cleanses things up to a certain extent. system. So why did this happen? Because interest rates went from zero to 5% very quickly, assets revalued very quickly and many smaller competitors lost access to capital. Griffin added. How does he identify the winners among the many growth stocks? Griffin, who manages the Munro Concentrated Global Growth Fund and the Munro Global Growth Small- and Mid-Cap Fund, said he focuses on structurally profitable growth. That is, the company will grow revenue regardless of economic conditions. “Because that’s a better opportunity to make money than trying to figure out how the economy is going to go, which is hard,” he said. “So just focusing on those companies that can grow a little bit independently over the cycle, we organize them into these areas or themes of interest.” Kieran Moore, portfolio manager at Munro, added that some companies’ growth is just Because of macroeconomic factors such as improved GDP or improved terms of trade, but they “are not necessarily advantageous” in themselves. Griffin and Moore believe that there are six qualities needed to become a “great” growth company that can double its earnings. These companies should continue to grow, with revenues reaching at least twice current GDP. Companies need to be able to capitalize on this growth. This means they should have some degree of pricing power or competitive advantage because their revenue or EBITDA (earnings before interest, tax, depreciation, and amortization) is actually growing faster than revenue. This growth should be sustainable “over a long period of time,” based on factors such as the total addressable market and fluctuations in operating revenue or profitability over time. Good ESG rating based on Munro’s internal ESG scoring process. It has a management team that is “highly consistent” with shareholders. These companies should have “amazing customer awareness” of their products—proven through data like Google Trends and reviews. “So what we want to see is the potential for our company to double our profits within five years,” Moore said. Griffin added: “Our investment process targets stocks that can double their earnings in five years, meaning they grow earnings by at least 15% per year.” Stock Picks Currently, Griffin is most concerned, he said. is the field of high-performance computing. “So we’ve long believed that the companies that help computers run faster are going to win. Because fast computers are the key to all human innovation,” he said. He listed some stocks in the fund that are riding the wave: Nvidia, ServiceNow, TSMC and Wise. These are the top 10 stocks held by the Munro Global Growth fund. Although large-cap stocks make up the majority of his investments, Griffin also likes some “inexpensive” small-cap stocks. That includes Pinterest and GoDaddy, two companies he said could also be huge beneficiaries of artificial intelligence.
