We're betting on ASX growth shares: global fund

Markets around the world are rotating to value stocks. But this investment house is going the other way — read why.

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One global investment house has announced it is going contrary to the current market trend.

The investment committee for T Rowe Price Group Inc (NASDAQ: TROW)'s Australian arm this week revealed its latest allocation strategy.

Globally, share markets have been shifting to value stocks in light of higher bond yields, possible inflation, higher interest rates and post-COVID lifestyles. The S&P ASX All Technology Index (ASX: XTX) has lost nearly 14% since 10 February.

But despite this — or perhaps because of it — T Rowe Price is backing two categories of stocks:

Australia is looking good

The T Rowe Price committee acknowledged the market's anxiety about higher interest rates.

But the group maintained high rates were "likely far" away.

"Central banks made it pretty clear that they want low yields to be maintained. For this reason we are skeptical about the ability for interest rates to derail the recovery," the committee reported.

"Recent actions taken by the Reserve Bank of Australia to buy government bonds to bring down long-term interest rates are a strong indication that monetary policy will remain accommodative."

And with the economy recovering strongly as shown in this week's positive unemployment numbers, the committee is optimistic about the Australian equities market.

"[Company] earnings are following through, benefitting from high commodity prices and record low yields," stated the T Rowe Price report.

"The economic momentum is firing on all cylinders, evidenced by the economic surprise index at record high levels."

Growth shares are looking good

While the market is rotating hard to value stocks, the T Rowe Price committee thinks now is the time to turn to growth.

"We have tilted portfolio positioning towards more domestic exposures to reflect the stronger economic performance of the Australian economy and also expect growth stocks to continue to do well in a contained yield environment," it reported.

The advice backs up DeVere Group chief executive Nigel Green's warning earlier this week to avoid the "rotation trap" — that is, don't go overboard dumping quality growth stocks.

"The danger is the massive hype surrounding rotation from growth stocks – those expected to grow sales and earnings at a faster rate than the market average – into value stocks," he said.

"Does anyone suddenly seriously think Amazon.com Inc (NASDAQ: AMZN), Alphabet Inc (NASDAQ: GOOGL) (NASDAQ: GOOG) and Tesla Inc (NASDAQ: TSLA) are not companies of the future also?"

T Rowe Price Australia is taking the profit earned on value shares it rotated to last year, and ploughing the cash back into growth.

"We remain well positioned in Australia in cyclical growth, recovery growth and high-quality stocks we believe will benefit as economic conditions continue to improve," the committee stated.

"To fund these portfolio changes we have taken profit on defensive growth names and somewhat reduced exposure to offshore earners."

Similarly, the committee was optimistic on Japanese and emerging market stocks. It reported the golden growth from the US tech sector seen in 2020 would not repeat this year.

The T Rowe Price Australia investment committee consists of the following experts:

  • Richard Coghlan, multi-asset portfolio manager
  • Randal Jenneke, head of Australian equities
  • Thomas Poullaouec, head of multi-asset solutions Asia-Pacific
  • Wenting Shen, multi-asset solutions strategist
  • Scott Soloman, associate portfolio manager, fixed income division

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Tony Yoo owns shares of Alphabet (A shares) and Amazon. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, and Tesla and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), and Amazon. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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