David Giroux, CIO of T. Rowe Price and manager of the Capital Appreciation strategy, joins Excess Returns for a wide ranging discussion on market valuation, AI investing, Mag 6 dynamics, utilities, healthcare, fixed income, and how to think independently in volatile markets. David shares his framework for exploiting structural market inefficiencies, why market drawdowns can create opportunity, how he evaluates the S&P 500 at the micro level, and what investors are getting wrong about AI, profit margins, and the current cycle.
Main topics covered in this episode
• Exploiting structural market inefficiencies in GARP stocks, high yield, and double B credit
• Why market drawdowns often lower forward risk and increase expected returns
• Strategic equity allocation during periods of fear and volatility
• Rethinking S&P 500 valuation through 500 company bottom up analysis
• The changing composition of the index and its impact on profit margins
• Where the most overvalued and undervalued areas of the market may be today
• AI investing framework including Nvidia, AMD, cloud providers, and software risk
• How AI could reshape margins, labor productivity, and enterprise software
• Differences between today and the dotcom bubble
• Overweight positioning in utilities and healthcare and the thesis behind each
• Fixed income positioning including the belly of the Treasury curve and fiscal risk
• Commodities, gold, and fiscal sustainability
• Lessons for portfolio managers on independent thinking and making high conviction bets
Timestamps
00:00 Market drawdowns and forward returns
02:09 Exploiting structural market inefficiencies
06:28 Strategic equity allocation during selloffs
11:22 Is the market expensive and how to value the S&P 500
15:00 Profit margins and index composition
17:13 Where valuation excess exists outside the Mag 6
20:38 How to think about AI and enterprise adoption
27:18 AI disruption risk across sectors
39:20 AI versus the dotcom bubble
42:30 Apple versus Meta and capital allocation
46:53 Overweight utilities and healthcare
52:57 Fixed income opportunities and risks
57:32 Commodities, gold, and fiscal concerns
01:00:15 Lessons for new portfolio managers
