Holly Black: Welcome to Morningstar. I'm Holly Black. With me is Julian Cook. He is a portfolio specialist on the T. Rowe Price US Blue Chip Equity Fund.
Hello.
Julian Cook: Hello, Holly. How are you?
Black: I'm good. So, that's quite a mouthful, that fund, but it kind of does what it says on the tin, focuses on U.S. blue chip stocks. How has this part of the market fared so far in 2020 with the COVID-19 crisis unfolding?
Cook: Well, I think, Holly, as a general comment about the U.S. equity market, it's actually really very resilient so far year-to-date. And particularly, within that the growth style of investing has been also very strong. So, growth has continued to outperform value. I know we've seen a little bit of a recovery in value over the last few days but it's been a very strong period of performance for growth equities in the U.S. stock market.
Black: Why do you think that is because typically in a bear market environment we might expect that to be a time where value stocks can really shine?
Cook: Yeah, what's been really unique about the sell-off that we saw in the first quarter is that some of the most highly valued companies in the U.S. actually were the most defensive. And that's the first time we've actually seen that in 30 years. So, this is unique. This is new territory. Now, that makes sense if the market is right in believing that this is a short-term and acute problem. But if it turns out that this recovery takes longer than the market is currently expecting, then you could see some of these high-valued stocks, I guess, start paying the penalty for it.
Black: And speaking of that recovery, we're getting a lot of predictions about what shape we can expect that to look like. Have you got any expectations on that?
Cook: Yeah, I think just think about the context of how we got here in the first place. The context was healthcare crisis that led to a social distancing problem, which led to isolation, which in turn then led to an economic crisis. So, that's kind of how we got to where we are. In terms of policy responses, in terms of monetary and fiscal, we've seen a colossal response in terms speed, size and breadth of assets that are being covered here and also global coordination in getting this rescue package put together. Now, we still think the key question that investors should be asking themselves is not when do we return to normal but rather when do we return to a normal recession. So, we think it's a little too optimistic here to assume as V-shape recovery given what we think looks like a challenging environment and one which has a wide range of outcomes. So, Larry Puglia has been running this strategy for 28 years and he's beaten the market over that 28-year timeframe. His view is, this is the most challenging period of time he's ever had in his career.
Black: So, we've already talked about growth versus value but are you seeing any winners and losers in terms of sectors in the U.S. market?
Cook: Yeah, it's a hard one for us to answer on a sector basis. Every single sector has nuances in terms of what exposures you can get exposed to. So, when we think about the broad areas that we like in our strategy, we like things like consumer discretionary, we like things like healthcare, we like communication services and IT. And in each of those areas there are a wide range of companies you can get exposed to. I will give you a quick example. In consumer discretionary we think that travel and airlines will the last to recover. So, we would rather be positioned in companies that are more likely to be first to recover. So, when we think about exposure to drive-through restaurants or takeaway restaurants, so things like Chipotle Mexican Grill or McDonald's are far more attractive to us than owning the airline companies or travel companies. So, even within consumer discretionary there's a wide range of variation that you can get exposure to. But those four areas of the markets are where we tend to find really good duration growth ideas.
Black: Julian, thank you so much for your time. For Morningstar, I'm Holly Black.
