Do not fear the market, asset manager says as he reveals his 10 best stock picks

Published Thu, Nov 25 20216:30 PM EST

Despite the threats from inflation, Covid-19 and central bank policy, stock investors don't have much to fear in the coming years, according to Invesco Portfolio Manager Randall Dishmon. In a note published Wednesday, Dishmon, who manages Invesco's Global Focus Equity Fund, said trends involving digitization and science will have greater bearing over long-term stock performance than economic factors. The market narrative as global economies look to emerge from the coronavirus pandemic has centered on inflation, supply chain bottlenecks, the possibility of central bank policy errors, and heightened stock valuations. Inflation has been running at multi-year highs in many major economies, while energy prices have soared. However, Dishmon said the structural change he looks out for is "bigger" than selecting cyclical or defensive stocks, and instead separates the market into "winners and losers, and the losers fade into obscurity." "The truth is, for us, there's not a lot that scares us as we head into 2022 or the years that follow," he said, adding that negative headlines often create the pullbacks in stock prices that can set investors up for "fantastic long-term returns in the years ahead." "In our years, we've seen all manner of inflationary scares, geopolitical tensions, terrorist attacks, currency crises and the like, but none of them have mattered to generating long-term returns for our clients." Dishmon recommended investors focus on buying "durably advantaged companies at the right price," run by competent and trustworthy management teams. "If we can find opportunities like that and invest in them with conviction, good outcomes will follow over a 3-5 year investment horizon. The rest is just noise." Tech giant networks The Invesco Global Focus Equity Fund's largest holding is Meta Platforms (Facebook), which constitutes 8.43% of its total assets, while tech behemoths Amazon and Google parent Alphabet also feature prominently. Dishmon characterized these as "great companies with deep intellectual libraries and formidable network effects," arguing that the size and scale of their competitive advantage was not temporal. Instead, he suggested they have created, and operate within, "economic ecosystems that have expanded structurally." Once entrenched, Dishmon said, the networks formed by the likes of Facebook, Amazon and Google can only be displaced by the creation of entirely new ones. Mastercard is another of the fund's top holdings. Dishmon attributed this to the importance of credit cards in the evolution of digital payments, and the growing means by which consumers can execute transactions online or in stores. IT transformations Another key structural shift Invesco has observed is IT departments migrating software to the cloud, a transition facilitated by the likes of Amazon Web Services and Alphabet, among others. The fund's second-and fourth-largest holdings are U.S. cloud computing companies Twilio and Salesforce , respectively. "This is no small thing. It represents a huge shift in the IT stack that has a long way to go. Software in the cloud rids the enterprise of some of the big capital outlays and a lot of hardware that is costly to maintain," Dishmon said. "The best innovations, the ones that represent a structural shift, always deliver an outcome that is both better and cheaper." Cybersecurity is also undergoing an overhaul as a result, given the plethora of endpoints and premises operating in the cloud, meaning innovation is also needed in network security. This substantial evolving field is growing in importance, and the fund has tipped CrowdStrike as well placed to capitalize having built the "first fit-for-purpose cloud-based security software." "It is not an adaptation of legacy on-premise software, it was designed to secure modern network endpoints, and modern threats and it is growing very rapidly," Dishmon noted. Human genome mapping One slightly more off-piste theme highlighted in Invesco's portfolio is the opportunities for drug development and clinical research arising from the mapping of the human genome. Although completed around two decades ago, Dishmon highlighted that its impact is now being seen more widely, most recently in the genetic sequencing of Covid-19 from an Illumina sequencing machine. "We are, however, in the early stages of this theme. We have chosen to invest in companies such as Illumina , diabetes giant Novo Nordisk and Thermo Fisher Scientific , a provider of a wide array of diagnostic and lab equipment sold to research labs, hospitals and the biotech and pharma industry," Dishmon said. "Each is the leading global player in their respective arenas with strong intellectual property rights and substantial long-term opportunity."

Invesco signage is displayed on a monitor on the floor of the New York Stock Exchange.

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Despite the threats from inflation, Covid-19 and central bank policy, stock investors don't have much to fear in the coming years, according to Invesco Portfolio Manager Randall Dishmon.