The value stocks in the large‑cap Russell 1000 Index have outperformed their growth counterparts in recent months, but this near‑term regime shift does not dim our conviction in high‑quality companies that we believe can compound in value over the long run by growing their revenue and cash flows.
When the market focuses more on a robust cyclical recovery in certain companies' earnings, our approach can lag in the near term. Nevertheless, the two of us remain confident that the rewards of the portfolio's emphasis on potential compounders are most likely to be realized over a full market cycle.
We strive to develop a deep understanding of the companies driving innovation. We also have observed the market's tendency to undervalue the potential durability of a company's free cash flow growth. Our differentiated insights into these factors look beyond the near term and are critical in shaping how we position for the long run - a point underscored by the portfolio's holdings in e‑commerce, an area where we see strong secular tailwinds and options for companies to expand into adjacent business lines.
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