In a series of recent posts, my colleague Olga Bitel and I have provided broader context around the recent drivers of the global economy and capital markets, and discuss what we see as the themes moving forward.

We note that while we have not had inflation in several years, it is not unexpected given our late-stage cyclical economic expansion—but nevertheless, as it has become more apparent, it has taken both equity and fixed-income markets by surprise.

It is taking only a small move in inflation and bond yields to create significant ripples throughout the capital markets. We believe this expansionary element will persist for some time. But what does it mean for financial markets?

In my opinion, we are in an environment in which industrials, financials (both banking and insurance), and commodities could perform much better.

In my opinion, we are in an environment in which industrials, financials (both banking and insurance), and commodities could perform much better, as they have the ability to take advantage of a steeper yield curve.

What does it mean from a valuation perspective? Valuation sensitivity has increased across geographies and sectors. Looking at the traditional discounted cash flow framework, the three main elements are suddenly working against investors with long-life assets.

The terminal multiple (the final multiple projected for a period, used in a discounted cash flow analysis and valuation) is probably coming down a little. The cost of capital seems to be heading up a little. Free cash flows are under pressure from taxes and protectionism.

Our preference remains for high-quality growth, but we believe the available opportunity set has expanded, and some of those companies are in cheaper areas of the market.

In this environment, we have been adding to high-quality companies with a focus on lower valuations. Our preference remains for high-quality growth, but we believe the available opportunity set has expanded, and some of those companies are in cheaper areas of the market.

 

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Please carefully consider the Funds’ investment objective, risks, charges, and expenses before investing. This and other information is contained in the Funds’ prospectus and summary prospectus, which you may obtain by calling +1 800 742 7272. Read the prospectus and summary prospectus carefully before investing. Investing includes the risk of loss.

Any statements or opinions expressed are those of the author as of the date of publication, are subject to change without notice as economic and markets conditions dictate, and may not reflect the opinions of other investment teams within William Blair Investment Management, LLC or the Investment Management Division of William Blair & Company, L.L.C.

This content is for informational and educational purposes only and not intended as investment advice or a recommendation to buy or sell any security. Investment advice and recommendations can be provided only after careful consideration of an investor’s objectives, guidelines, and restrictions.

Factual information has been taken from sources we believe to be reliable, but its accuracy, completeness or interpretation cannot be guaranteed. Investments are subject to market risk. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be interpreted as investment advice, as an offer or solicitation, nor as the purchase or sale of any financial instrument. Statements concerning financial market trends are based on current market conditions, which will fluctuate.

William Blair does not provide legal or tax advice. Please consult your tax and/or legal counsel for specific tax questions and concerns.

Distributed by William Blair & Company, L.L.C., member FINRA/SIPC.

Copyright © 2019 William Blair & Company, L.L.C. "William Blair” is a registered trademark of William Blair & Company, L.L.C. No part of this material may be reproduced in any form, or referred to in any other publication, without express written consent.

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Please carefully consider the Funds’ investment objective, risks, charges, and expenses before investing. This and other information is contained in the Funds’ prospectus and summary prospectus, which you may obtain by calling +1 800 742 7272. Read the prospectus and summary prospectus carefully before investing. Investing includes the risk of loss.

Any statements or opinions expressed are those of the author as of the date of publication, are subject to change without notice as economic and markets conditions dictate, and may not reflect the opinions of other investment teams within William Blair Investment Management, LLC or the Investment Management Division of William Blair & Company, L.L.C.

This content is for informational and educational purposes only and not intended as investment advice or a recommendation to buy or sell any security. Investment advice and recommendations can be provided only after careful consideration of an investor’s objectives, guidelines, and restrictions.

Factual information has been taken from sources we believe to be reliable, but its accuracy, completeness or interpretation cannot be guaranteed. Investments are subject to market risk. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be interpreted as investment advice, as an offer or solicitation, nor as the purchase or sale of any financial instrument. Statements concerning financial market trends are based on current market conditions, which will fluctuate.

William Blair does not provide legal or tax advice. Please consult your tax and/or legal counsel for specific tax questions and concerns.

Distributed by William Blair & Company, L.L.C., member FINRA/SIPC.

Copyright © 2019 William Blair & Company, L.L.C. "William Blair” is a registered trademark of William Blair & Company, L.L.C. No part of this material may be reproduced in any form, or referred to in any other publication, without express written consent.

Statement of Financial Condition | NMS Rule 605 & 606 | Business Continuity Plan | UK Stewardship Code
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