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Goldman Sachs Asset Management Statement on the Russia-Ukraine War. Read it here .

   

Fundamental Equity

2022 Top Equity Ideas

With expectations of lower returns across asset classes, we believe investors will need more actively managed equities to meet their total return targets in the years ahead. In this changing macro environment, where inflation is likely to lead to rising interest rates, equity investors will need access to secular growth megatrends while navigating inflation. We highlight several strategies with potentially strong exposure to secular growth, discuss the growing importance of environmental, social and governance (ESG) considerations and explore the idea of using real assets and public equities as complements to private investments.

The Beta Environment Is Evolving; The Active Environment Is Improving.

Returns across all asset classes are likely to be lower than in recent years

In 2022, interest rates are likely to rise and companies have higher margins and valuations than before; as a result, returns are likely to be lower. However, equities have historically outperformed inflation—and fixed income assets—and we believe this will be the case in 2022. 

 

Source: Goldman Sachs Investment Strategy Group. Data as of December 31, 2021. See end note disclosure for additional details.

We see new drivers of equity returns that we believe will create more opportunities for active managers to generate alpha.

Rather than traditional factors such as growth vs. value, large cap vs. small cap or developed vs. emerging markets, we believe performance will be driven more by secular growth trends that play out at the company level. Disruption from technological innovation, demographic change and an increasing focus on sustainability is creating secular growth megatrends with winners and losers across sectors and regions. The message is clear: over time, disruptors have significantly outperformed companies vulnerable to disruption.

Disruptors

 

Source: Goldman Sachs Asset Management, FactSet, as of December 31, 2021. Secular growth themes include investment themes that have the potential to transcend business cycles and reflect the overall success or decline of an industry, including but not limited to clean energy, e-commerce, artificial intelligence and genomics. Past performance does not guarantee future results, which may vary.

At the same time, we continue to believe that passive market cap-weighted strategies are too aggressive, leaving investors overexposed to companies on the wrong side of disruption as well as high concentration in some indices, notably the S&P 500, where the top five stocks—or 1% of the index—represent over 20% of the market capitalization.

Active management

 

Source: Goldman Sachs Asset Management

Equity Investment Ideas For 2022

We believe investors can benefit from taking an active approach that uses the widest possible opportunity set.

 

Exposure to secular growth through four megatrends: Disruption from the spread of technological innovation, demographic changes around the world and an increasing focus on sustainability from governments, consumers and investors is playing out in four secular growth megatrends: technological advancement, the new age consumer, the future of health care and environmental sustainability.

 

US small caps: Offering exposure to secular growth without the concentration risk in large caps, we expect US small caps to outperform the broader market. In addition to stronger earnings growth forecasts for 2022, US small caps have also typically outperformed large caps in rising interest rate environments.

 

Emerging market equities: Despite higher expected growth and returns than most other regions, EM equities are trading near a 20-year low relative to US equities. We believe there is significant value in a dedicated active allocation, where the ability to own EM stocks that are not in the benchmark and participate in IPOs can potentially generate significant alpha in this inefficient market.

 

China equities: We believe many investors are underexposed to the growth and strong alpha potential of the second-largest economy in the world. Importantly, active managers have consistently generated alpha over the past 10 years in the domestic China A-shares market, which investors can access through an allocation to China A-shares, China All Shares or EM.

 

Sustainability and ESG: We believe environmental, social and governance (ESG) considerations will matter more to investment success because governments, corporations and consumers increasingly care about them. We believe an active, fundamental approach with scale, incorporating corporate engagement, is essential to providing a more informed view of ESG factors.

 

Real assets and select public equities as a complement to private investments: We believe investors can potentially benefit from differences in the composition and characteristics of public and private markets by using an integrated approach to investing. Thematic funds with exposure to high secular growth and real assets are areas where public and private investments can be strategically complementary. Real assets also offer yields comparable to bonds but can benefit in an inflationary environment.

Related Insights

Disclosures

Views and opinions expressed are for informational purposes only and do not constitute a recommendation by Goldman Sachs Asset Management to buy, sell, or hold any security. Views and opinions are current as of the date of this presentation and may be subject to change, they should not be construed as investment advice.

 

This material is provided for informational purposes only. It is not an offer or solicitation to buy or sell any securities.

 

Past performance does not guarantee future results, which may vary. The value of investments and the income derived from investments will fluctuate and can go down as well as up. A loss of principal may occur.

 

THIS MATERIAL DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN ANY JURISDICTION WHERE OR TO ANY PERSON TO WHOM IT WOULD BE UNAUTHORIZED OR UNLAWFUL TO DO SO.

Prospective investors should inform themselves as to any applicable legal requirements and taxation and exchange control regulations in the countries of their citizenship, residence or domicile which might be relevant.

Economic and market forecasts presented herein reflect a series of assumptions and judgments as of the date of this presentation and are subject to change without notice. These forecasts do not take into account the specific investment objectives, restrictions, tax and financial situation or other needs of any specific client. Actual data will vary and may not be reflected here. These forecasts are subject to high levels of uncertainty that may affect actual performance. Accordingly, these forecasts should be viewed as merely representative of a broad range of possible outcomes. These forecasts are estimated, based on assumptions, and are subject to significant revision and may change materially as economic and market conditions change. Goldman Sachs has no obligation to provide updates or changes to these forecasts. Case studies and examples are for illustrative purposes only.

This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice. This material has been prepared by Goldman Sachs Asset Management and is not financial research nor a product of Goldman Sachs Global Investment Research (GIR). It was not prepared in compliance with applicable provisions of law designed to promote the independence of financial analysis and is not subject to a prohibition on trading following the distribution of financial research. The views and opinions expressed may differ from those of Goldman Sachs Global Investment Research or other departments or divisions of Goldman Sachs and its affiliates. Investors are urged to consult with their financial advisors before buying or selling any securities. This information may not be current and Goldman Sachs Asset Management has no obligation to provide any updates or changes.

 

United Kingdom: In the United Kingdom, this material is a financial promotion and has been approved by Goldman Sachs Asset Management International, which is authorized and regulated in the United Kingdom by the Financial Conduct Authority.

 

European Economic Area (EEA): This material is a financial promotion disseminated by Goldman Sachs Bank Europe SE, including through its authorised branches ("GSBE"). GSBE is a credit institution incorporated in Germany and, within the Single Supervisory Mechanism established between those Member States of the European Union whose official currency is the Euro, subject to direct prudential supervision by the European Central Bank and in other respects supervised by German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufischt, BaFin) and Deutsche Bundesbank.

 

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Canada: This presentation has been communicated in Canada by GSAM LP, which is registered as a portfolio manager under securities legislation in all provinces of Canada and as a commodity trading manager under the commodity futures legislation of Ontario and as a derivatives adviser under the derivatives legislation of Quebec. GSAM LP is not registered to provide investment advisory or portfolio management services in respect of exchange-traded futures or options contracts in Manitoba and is not offering to provide such investment advisory or portfolio management services in Manitoba by delivery of this material.

 

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