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CONTRIBUTORS

Richard E. Bodzy

Portfolio Manager, US Large Cap Growth
United States

Gregory D. McCullough, CFA

Portfolio Manager, US Large Cap Growth
United States

In the large-cap growth space thus far in 2024, there has been a notable increase in breadth and leadership within the market. Following the extraordinary concentration of returns from the Magnificent Seven1 and technology-focused mega-caps, we anticipate market leadership will continue to expand alongside earnings growth expansion. A shift in leadership will require sustainable, outsized growth—which we are starting to see across multiple sectors.

Potential from traditional growth sectors

At a high-level, we look for growth trends that are powerful and multiyear in nature. As a result, through our research we see pockets of improving earnings growth in a number of sectors. We prioritize growth duration over absolute growth, and we are optimistic about potential from traditional growth sectors in the next 3-5 years.

For example, in the industrials space, we’ve been attracted to the above-gross domestic product growth within the HVAC end market for a number of years. As commercial building modernization accelerates to meet corporate sustainability targets and government efficiency standards globally, HVAC providers should stand to benefit. One of the higher-quality operators possesses a higher growth rate than its peers and appears positioned to be an outsized beneficiary of the underlying market tailwinds. We believe HVAC providers can also play a meaningful role in driving down the level of global carbon emissions generated by buildings over time.

AI tailwinds span multiple sectors

Certain HVAC providers are also likely to benefit from the tailwind of artificial intelligence (AI), which is advancing at a remarkable pace and leverages massive computing power. AI has created rapidly surging demand for data centers, many of which are supported by aging cooling systems that aren’t equipped to handle the increased capacity. HVAC providers with expertise in cooling systems should have a powerful advantage as AI demand accelerates.

Excitement around AI has been building for many years, but now we’re seeing strategic action and prominent real-world applications related to generative AI from some of the world’s largest companies. Generative AI is an exciting theme not only because of the size and duration of the opportunity, but also because many of the businesses fit squarely in our large-cap growth investable universe.

We believe the immediate beneficiaries of this theme are the enablers, such as semiconductor companies, as well as scaled platforms, such as cloud service providers. However, we also see meaningful potential for future applications of generative AI across most other sectors. Examples include disease detection in health care, search and productivity tools for consumers and businesses, and fraud detection in e-commerce. We believe AI technologies could drive a durable investment cycle across economic end markets that will be both powerful and influential to future stock returns.

Endnotes

  1. The “Magnificent Seven” are Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla.


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