The micro view: challenged companies fight back

Robert W. Sharps , Head of Investments, Group Chief Investment Officer
Justin Thomson , Portfolio Manager
Mark Vaselkiv , Portfolio Manager

Executive Summary

  • Throughout much of the past decade, equity market trends have favoured investors in fast-growing companies
  • Over this time, companies that have been trading below their intrinsic value, known as value companies, have underperformed
  • In part, this reflects the impact of disruption which, in its many forms, has tended to favour the technology sector and the growth style
  • As long-established companies begin to compete more aggressively against younger upstarts, there is potential for a change of market dynamics and the value style may re-emerge.

Shaking up the market

Shifting consumer preferences and new technologies have put established business models under pressure in recent years, as everything from taxi rides to travel agents is being revolutionised. This has produced a stark disparity between the fortunes of growth and value equity investing styles, as demonstrated by the chart below.

Disruption tilts the fundamentals towards growth

Cumulative changes, June 30, 2007 – May 31, 2019

Disruption tilts the fundamentals towards growth

Past performance is not a reliable indicator of future performance

Source: Russell (see Important Information). T. Rowe Price analysis using data from FactSet Research Systems Inc. All rights reserved.

In the decade following the 2008 financial crisis, the growth style of equity investing has tended to outperform the value style as business and economic disruption have favoured fast-growing companies. We’ve seen little evidence in the first half of 2019 to suggest disruption is slowing down.

That said, we believe the story has begun to shift. One characteristic of fast-growing companies, such as technology start-ups, is that they prioritise rapid expansion and capital investment over near-term profitability. While this approach has proved successful during the most recent technology cycle, investors now appear more aware of the risks associated with financing business plans that push profitability into the distant future. Evidence of this could be seen during the initial public offerings of ride-share giants Lyft and Uber, which fell short of expectations owing to weak demand from potential investors.

On the flipside, established firms that have lagged their more innovative rivals in recent years are beginning to fight back. Leveraging their financial strength and strong brand positions, they are investing in areas where upstarts have taken early market share. Case in point: The Walt Disney Company, which has grown into a major force with its ownership of film studios and television networks, has announced major investments into its own content streaming services to compete with Netflix.

Legislation versus technology

The high-growth technology sector is also facing its share of challenges, particularly from legislators. Political attitudes towards the major technology platform companies are changing due to rising concerns about market power, data privacy, and false or misleading content. So far none of these complaints have generated any serious legislative efforts to restrict technology platforms, but we believe this issue is worth monitoring. We believe investors should be aware that the regulatory regime could change in the future.

Overall, we believe these developments equity investors should prepare themselves for a potential shift in a decade-long market dynamic.   


Important Information


London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group 2019. FTSE Russell is a trading name of certain of the LSE Group companies.  Russell® is a trade mark of the relevant LSE Group companies and is used by any other LSE Group company under license.  All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication.

The specific securities identified and described do not represent all of the securities purchased, sold, or recommended for the portfolio, and no assumptions should be made that the securities identified and discussed were or will be profitable.

This material is being furnished for general informational purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, and prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.


The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.

Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources’ accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date written and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.

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Class I USD
ISIN LU0143563046
A high conviction global equity fund for which we seek to identify companies on the right side of change. The portfolio typically consists of typically 60-80 stocks representing our most compelling bottom-up growth ideas, often derived from technological innovation and secular disruption.
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