Finding growth in a low-growth world

4 min read
4 min read

Since the GFC, global economic growth has been weak, particularly across the developed world, and this is a trend which we expect to continue long after the COVID-19 crisis.

The world economy is facing numerous structural headwinds including high levels of debt, ageing populations, rising wealth inequality, technological disruption, and environmental disruption brought about through climate change. Globalisation has also made the world a much more competitive arena.

COVID-19 did not create these headwinds, but it will exacerbate most of them and their effects. For this reason, we continue to hold the view that a growth-based investment style will continue to outperform value investing and other investment approaches in the decade to come.

Out with the old in with the new

The value investing approach relies heavily on investing in discounted average businesses that are trading below their perceived intrinsic value, but which are reliant on a strong economy to grow. It stands to reason that in a global economy which is no longer growing, such companies will underperform.

The only other way to grow earnings is to take market share away from competitors and therefore, we focus on growth companies which do precisely this. These companies are characterised by their strong revenues and profits which allow them to grow at rates well above the overall benchmark – this is especially true in economic downturns.

We favour modern and technology-enabled businesses because we believe old-world companies and old-world drivers of growth—including those companies with business models that are reliant on fossil fuels for their value propositions—will no longer be effective in delivering above benchmark returns over the next decade.

In our view, technology continues to be the key driver of growth and change, and we seek to leverage the key themes which we believe will deliver alpha. Among these are the shift from traditional media to online/digital media, the move from cash to electronic payments (which has accelerated during COVID-19), the transition to sustainable energy and transport, and the digital transformation of the workplace.

Looking at the current market recovery, we can see that it has been technology-led with the NASDAQ recovering more than 40 per cent from its lows compared with approximately 36 per cent on the S&P500 and 27 per cent for the ASX200 (at the time of writing on 27 May 2020).

Picking the winners

The companies we believe are set to dominate are those with strong value propositions, sustainable competitive advantages, a large and growing addressable market, strong positive free cash flows, high levels of R&D investment, low levels of debt and a talented management team with a long-term focus and skin in the game.

Technology disrupters like Amazon, Facebook and Google are just some of the most recognisable names but there are various others, both abroad and in Australia, which show potential and which we believe will outperform the broader market in the long-term.

Local but global

Our investment thesis is long-term in nature and focused on fundamental quality. Regardless of changing market conditions, we continue to invest only in the highest quality companies that we believe have the best potential to outperform for shareholders.

Within the Australian market, we particularly like healthcare and technology stocks and our portfolios have a significant international tilt with many of the businesses including CSL, ResMed and Xero having diversified and global revenue streams with large addressable markets. We believe modern businesses like these, that invest in R&D and technology, will not only strongly recover but will significantly outperform over the long run as they take market share from competitors.

Compared with international equity markets, Australia has a high concentration of large and traditional financial and resource-focused businesses. This means we have a far more limited investment universe to choose from, especially when we screen out banks which we believe are vulnerable to technological disruption, and that energy and resources are in structural decline or lack the earnings predictability we required. As a result, we currently have no exposure to oil or gas and our exposure to the banking sector remains low within the overall portfolio.

The long view

Ultimately, super fund investment teams need to take a long-term view on the intrinsic value of a company to determine if it is expensive or not. While some value companies may look cheap compared to growth companies on a short-term PE multiple, we believe many of these old-world businesses will continue to be disrupted in a low-growth world.

Picture of By Mark Arnold

By Mark Arnold

chief investment officer

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Derek Thompson

Best Selling Author, Podcast Host of 'Plain English'

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Few speakers can match Derek Thompson‘s ability to synthesize mega-trends in society, labor, economics, technology, and politics. Put another way: Derek trawls the data sets and does the forecasting and deep reporting necessary to help us better understand how we live, how we vote, how we spend, and how we work.

In his paradigm-shifting #1 New York Times bestseller, Abundance (co-written with Ezra Klein), this award-winning journalist reveals how our policies and culture have pushed us into a world of scarcity (not enough housing, workers, or progress)—and offers a radical new path towards a world where housing is affordable, energy is plentiful, and innovation flourishes across industries.

He shares a compelling vision of a future where we have more than enough for everybody, and a practical, actionable roadmap for how to get there. It starts with taking more risks, building more expansively, and recognizing that we all have the power to create a world of abundance. “Everything’s utopian until it’s reality,” he says.

Carmen Beverley-Smith

Executive Director - Superannuation, Life & Private Health Insurance, APRA

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Carmen joined APRA in March 2023 and holds the role of Executive Director, Life and Private Health Insurance and Superannuation.  

She has had an esteemed career in financial services, spanning over 25 years. She has held diverse leadership roles at Westpac and Commonwealth Bank of Australia, including across risk, transformation and change, product and portfolio development, and sales and service. 

Prior to joining APRA, she held the role of General Manager, Risk Transformation Delivery Integration at Westpac. This involved leading the group-wide implementation of a suite of solutions to uplift risk management capability and develop data, analytics and reporting. 

Carmen leads with a values-driven approach and a particular interest in developing and mentoring talent. 

She holds a Bachelor of Commerce and Accounting, is a certified Chartered Accountant and a Graduate of the Australian Institute of Company Directors. 

Amy C. Edmondson

Novartis Professor of Leadership and Management, Harvard Business School

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Amy C. Edmondson is the Novartis Professor of Leadership and Management at the Harvard Business School, a chair established to support the study of human interactions that lead to the creation of successful enterprises that contribute to the betterment of society.

Edmondson has been recognized by the biannual Thinkers50 global ranking of management thinkers since 2011, and most recently was ranked #1 in 2021 and 2023; she also received that organization’s Breakthrough Idea Award in 2019, and Talent Award in 2017.  She studies teaming, psychological safety, and organisational learning, and her articles have been published in numerous academic and management outlets, including Administrative Science Quarterly, Academy of Management Journal, Harvard Business Review and California Management Review. Her 2019 book, The Fearless Organization: Creating Psychological Safety in the Workplace for Learning, Innovation and Growth (Wiley), has been translated into 15 languages. Her prior books – Teaming: How organizations learn, innovate and compete in the knowledge economy (Jossey-Bass, 2012), Teaming to Innovate (Jossey-Bass, 2013) and Extreme Teaming (Emerald, 2017) – explore teamwork in dynamic organisational environments. In Building the future: Big teaming for audacious innovation (Berrett-Koehler, 2016), she examines the challenges and opportunities of teaming across industries to build smart cities. 

Edmondson’s latest book, Right Kind of Wrong (Atria), builds on her prior work on psychological safety and teaming to provide a framework for thinking about, discussing, and practicing the science of failing well. First published in the US and the UK in September, 2023, the book is due to be translated into 24 additional languages, and was selected for the Financial Times and Schroders Best Business Book of the Year award.

Before her academic career, she was Director of Research at Pecos River Learning Centers, where she worked on transformational change in large companies. In the early 1980s, she worked as Chief Engineer for architect/inventor Buckminster Fuller, and her book A Fuller Explanation: The Synergetic Geometry of R. Buckminster Fuller (Birkauser Boston, 1987) clarifies Fuller’s mathematical contributions for a non-technical audience. Edmondson received her PhD in organisational behavior, AM in psychology, and AB in engineering and design from Harvard University.

 

Daniel Mulino MP

Assistant Treasurer and Minister for Financial Services

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Born in Brindisi, Italy, Daniel was a young child when he moved with his family to Australia. He grew up in Canberra and completed his first degrees – arts and law – at the ANU. He then completed a Master of Economics (University of Sydney) and a PhD in economics from Yale.

He lectured at Monash University, was an economic adviser in the Gillard government and was a Victorian MP from 2014 to 2018. As Parliamentary Secretary to the Treasurer of Victoria, Daniel helped deliver major infrastructure projects and developed innovative financing structures for community projects.

In 2018 he was preselected for the new federal seat of Fraser and became its first MP at the 2019 election, re-elected in 2022 and 2025. From 2022 to 2025, Daniel was chair of the House of Representatives’ Standing Economics Committee in which he chaired inquiries; economic dynamism, competition and business formation and insurers’ responses to 2022 major floods claims.

In 2025, he became the Assistant Treasurer and Minister for Financial Services.

In August 2022, Daniel published ‘Safety Net: The Future of Welfare in Australia’, which aims to explore the ways in which an insurance approach can improve the effectiveness of government service delivery.