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The Playbook

Updated: Jul 20, 2023

The threats of business disruption and stalled economic growth have led to a significant market drawdown and increased volatility. The economic impact was initially China-specific but has since spread across the globe, and the companies that have been hardest hit are those that:

  • Are exposed to travel

  • Have cyclical exposure

  • Have global exposure

  • Are dependent on physical presence (such as restaurants, gyms etc.)

  • Have high leverage

While the current market backdrop is highly abnormal, we believe the potential to generate excess returns is greater than normal, especially for longer-term oriented investors. Sharp price adjustments have created opportunities to selectively add to our higher conviction ideas at more attractive valuations. We have also been nimble and sold out of names whose risk/reward has, in our view, become less favorable. Overall, we have used recent market volatility as an opportunity to “rotate into quality.” We have a heightened concern of the risks that exist in companies that have exposure to travel such as airlines, hotels and gaming, that require a high degree of human attendance such as live events and restaurants, or that have a high dependence on Chinese manufacturing and consequent supply chain disruptions.

Nevertheless, we know that timing a market bottom is difficult if not altogether impossible, and history tells us that the penalty to being early requires investors to endure only a short period of patience before being made whole again. As the chart shows, investing 5% before the market bottom has, on average, added just three days to an investor’s recovery period. Investors with the ability to enter early may take advantage of deep discounts to begin positioning for the recovery.

Source: Bloomberg and Goldman Sachs Asset Management

Many of our portfolios have been overweight companies related to consumer experience, such as travel and leisure activities, which we believe is a long-term secular growth theme reflecting the spending habits of millennials. Before the COVID-19 outbreak, consumer prospects were strong, particularly in the U.S., due to a robust economy and low unemployment. The extreme measures taken to combat the spread of COVID-19 will have an outsized negative impact on the earnings of many of these companies in the near-term. In several cases, we have re-sized positions accordingly to actively manage near-term risk, while adding to the highest quality, highest conviction businesses trading at valuations that we believe overly discount their durable growth potential. The rest of our sector-by-sector playbook looks like this:

Health Care

We maintain a bias towards higher quality, defensive and innovative companies. These include well diversified pharmaceutical companies and faster growing health care equipment and supply companies that have historically been better insulated from the volatility and political risks going into election years than other types of healthcare companies. We continue to favor genomics and precision medicine companies, which are at the forefront of disrupting health care and creating new ways to treat medical conditions on a more personalized basis (some of which even aim to either treat or prevent COVID-19).


We have updated some of our positioning in light of the significant cut to interest rates and the increase in market volatility. We continue to be cautious on banks due to the further challenges to profit margins that will likely result from the recent rate cuts. We are more constructive on capital markets companies (that may benefit from market volatility and mergers & acquisitions/restructurings) and on stock exchanges, which are generally capital-light businesses that may benefit from higher market volatility.

Materials and Industrials

We have tempered our previously optimistic view that was based on fundamentals improving. However, we recently added selectively to companies within the defense sector for many portfolios. Where we have decided to increase our more cyclical areas of our portfolios, we have demanded even greater financial strength.


We were already underweight energy for most clients. In the U.S., we maintain a negative structural view of the long-term supply-demand dynamics, which becomes even more pronounced in an environment of $30 oil (WTI).

Infrastructure/Real Estate

We generally like this part of the market today due to the higher yields and relatively predictable cash flows. However, many of these stocks have been crushed, and the sector is as littered with broken tapes as the travel industry. In the case of listed real estate, we remain cautious on retail and senior housing and prefer companies where demand is likely to remain relatively strong, especially over the longer-term (communications towers, document storage, digital storage, and life-science office space).

While we may still see another trading leg down for equities, we believe we’re closer to a bottom than a top, and there will be additional opportunities to utilize the playbook herein described.

We acknowledge there has been a meaningful drawdown in the market and that these are trying times for everyone, both on the health and financial fronts. Please know that we wish you only the best, and rest assured we’ll remain committed to being faithful stewards of your capital.

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