December 5, 2019 | By: Tony Genua

The Q&A

2.5 min read

It’s been one of the best decades ever for U.S. equity markets. Tony Genua, portfolio manager of AGF’s namesake strategy, offers his unique perspective on what the next 10 years will bring for the most popular universe of stocks in the world.   

You’ve experienced various market environments through your long tenure in the industry. With a new decade about to start, what do you believe equity investors are in for over the next 10 years?

I’m so glad that the question is about a 10-year horizon versus one year. An examination of a century of U.S. market history leads to several observations relevant to what one might expect for the coming decade. First, 10-year returns for the S&P 500 Index are positive 94% of the time over the past 100 years, according to Bloomberg data. There have been three occasions when 10-year market returns were negative: the 1930s (Great Depression); the early 1970s (Arab oil embargo); and the 2000s (bookended by the bubble bursting and the global financial crisis). Since there has never been a negative return over a 20-year holding period, the 10-year returns following a poor period have been positive in all instances. While negative-return decades have been followed by positive-return decades, it is interesting to note a lack of correlation between how good a past-decade return was and the subsequent decade return. Some have suggested that with equity market returns from 2010-2019 being so high, the 2020s are unlikely to be a healthy period for returns. This may be the case, but in my opinion, the next decade will see equity market returns in-line with historical experience of roughly 9-10%. This return forecast is particularly attractive relative to what can reasonably be expected from most fixed-income instruments, given the very low starting level of interest rates as we enter the 2020s.


What do you believe were the trends fueling the past returns and how might that change in the coming year and decade ahead?

There is no question several significant trends have emerged in the past 10 years. This includes social media, e-commerce and streaming content such as video, music and podcasts as well as innovations such as cloud infrastructure and solutions; artificial intelligence; electric, hybrid and autonomous vehicles; and personalized medicine. These noted trends and others will continue to impact the global economy as they result in the introduction of new products and services. What is interesting from an investment perspective is the twin dynamic of some of these trends being relatively established and perhaps vulnerable to disruption while other trends are still relatively early in benefiting from the significant addressable market that has yet to develop.


It seems many of these trends are associated with growth-style investing, which has had a good run over the past 10 years. Can that continue?

Growth has indeed had a very good past decade and that should come as no surprise considering the improved fundamentals of the companies that have participated in many of these trends. Moreover, the economic recovery from the depths of the global financial crisis has been the longest on record, but also the shallowest in the past 75 years. As such, the sectors, industries and companies that typically comprise the value style approach have not had the cyclical uplift associated with past economic cycles. Other considerations in the growth/value debate range from the shift towards a service-oriented economy and the changing behaviour of younger consumers to the significant investment in non-tangibles versus fixed assets and the definitional aspects of what constitutes growth versus value. There is also a matter of having a very long-term perspective in looking at how growth has performed relative to value. From this multi-decade viewpoint, growth still has a long way to go since growth has only outperformed value two out of the last nine decades, according to FTSE Russell research.  


U.S. S&P 500 Total Returns (1937-2018)

Source: AGF Investment Operations as of December 31, 2018. Note: You cannot invest directly in an Index. Calendar year returns  in U.S dollars.

Any final thoughts?

Often, it is suggested that one should be cautious on U.S. equities in the year ahead given the length of the current economic expansion and subsequent bull market. There are, of course, the usual suspects to blame for a challenging economic environment. These include: the U.S.-China trade war; Brexit; political candidates unfriendly to the market; the ever-so-brief inverted yield curve and low CEO confidence. Most of these concerns relate to the end of the economic expansion. Despite these risks, I’m not expecting a recession in 2020 and corporate profits should make progress, fuelling higher stock prices. Investors should stay the course in having U.S. equity exposure that is appropriate for their portfolio. As Warren Buffet said: “The stock market is designed to transfer money from the active investor to the patient investor.”

Tony Genua is Senior Vice-President and Portfolio Manager, AGF Investments Inc. 

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