Episode summary
$70 Billion. 18 Straight Outperforming Years | David Giroux on What Markets Are Getting Wrong
Excess Returns
· · 1 hr 5 min · Hosts: Matt Zeigler, Jack Forehand, Justin Carbonneau, Dave Nadig, Brent Kochuba, Kai Wu, Eric Pachman, Andy Constan, Cameron Dawson, Bogumil Baranowski, Kevin Muir, Aahan Menon, Ben Hunt, Jim Paulsen, Jason Buck · Guests: David Giroux
Summary
David Giroux argues that the market keeps mispricing structural inefficiencies because different investor groups leave gaps that a bottom-up manager can exploit. He cites GARP stocks and double-B high yield as examples, saying they can offer better growth or yield with less risk because they have no natural owner and are often ignored by both value and growth managers. He also says many former value names can migrate into GARP over time, creating both faster earnings growth and multiple expansion.
On portfolio positioning, Giroux says drawdowns are often opportunities, not warnings: when markets fall 15%, 20%, or 30%, forward 12-month risk tends to fall and expected returns rise. He says T. Rowe Price added billions of dollars of equity in past selloffs and would do so again, while pulling back when valuations are frothy. He also pushes back on simplistic market valuation measures, arguing the S&P 500 is very different from 2006 or 2011 and should be judged company by company, not by an old headline multiple.
Giroux is more constructive on utilities and healthcare than on many parts of the market. He says utility demand is accelerating because of AI data centers and that some regulated utilities can compound earnings at high single-digit to low-double-digit rates. In healthcare, he sees biotech takeout optionality, GLP-1 beneficiaries, and generic-cycle winners.
On AI, Giroux says it is still too early to know the full impact. He thinks Nvidia faces more competition, while utilities, Broadcom, AMD, and some software firms may benefit more than investors expect. He sees fixed income as less compelling overall, but thinks the belly of the Treasury curve is the best place to sit given fiscal risk at the long end.
Key takeaways
- Giroux says market selloffs usually improve forward risk/reward, and his firm has repeatedly added equity exposure during fear-driven declines.
- He estimates the S&P 500’s fair multiple is about 19 to 19.5x earnings using a bottom-up analysis of 500 companies.
- He argues the most overvalued areas today are parts of industrials, financials, consumer discretionary, and consumer staples, not just the largest tech names.
- He expects utilities to benefit from AI-driven power demand, with some holdings potentially growing earnings 9% to 12%.
- He thinks AI will pressure some software names, but is more cautious on Nvidia than on AMD, Broadcom, and regulated utilities.
- He sees the four- to seven-year Treasury “belly” as the best fixed-income risk/reward because long-duration bonds face fiscal-sustainability risk.
Notable quotes
“The risk of loss over the next 12 months actually are lower not higher actually lower”
“We bought $4 billion of equities in a 3-day period of time in the April swoon”
“I refuse to say the Mag 7”
“The S&P 500 of today is vastly different from the S&P 500 of 2006 and very very different the market in 2011”
“the most attractive part over time of the Treasury Cove is this let's call it this four to sevenyear bucket the belly of the curve”
How the episode opens
In the past when the market falls 15%. Or the market falls 20% or 30%. The risk of loss over the next 12 months actually are lower not higher actually lower.
To justify the massive expenditures here you need to you need to show broad enterprise adoption and really good and I think we're just we're just early in that case to be made about how that's going to play out. Um so could this be as impactful as the railroads or or or internet? Absolutely.
Maybe even more, maybe even more powerful. Um, but I think it's still to be determined in how powerful that is. The S&P 500 of today is vastly different from the S&P 500 of 2006 and very very different the market of 2011.
In 2006, 45% of the auditings from the market were coming from financials, materials and um and oil. And those are all low multiple sectors right today. The VA, you know, we have actually 53% of the SP 500 today from a market cap perspective are businesses that are actually growing organically in the by single digits.
Basically twice nominal GDP.
Hi David, welcome back to Excess Returns. — Thank you for having me. A pleasure. I'm looking forward to the conversation today.
We had a great conversation with you last year. I know our audience really enjoyed it and so some of this discussion today is a continuation of that but we wanted to cover uh many new topics uh with you as well. You lead T-roll prices capital appreciation strategy including the capital appreciation fund and capital appreciation equity ETF.
You also serve as the head of investment strategy and CIO for the firm. So the cool thing with you is we can talk bottoms up investment selection, stock selection, and the things that you're doing in fixed income, but then we can also talk strategic stuff with you as well.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- ai investing
- market valuation
- mag 6 dynamics
- s&p 500 valuation
- fixed income positioning
Companies and tickers mentioned
- TROW
- NVDA
- AMD
- AAPL
- META
- T. Rowe Price
- Nvidia
- AMD
- Apple
- Meta
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Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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