We show how corporate valuations change as we vary assumptions about growth, return on incremental invested capital, and the discount rate.

• Most investors value stocks using multiples and also seek to distinguish between value and growth stocks. But these practices obscure the important drivers of value, and very few investors have a clear sense of how revisions in expectations for those drivers change multiples.
• We focus on how changes in growth rates can affect P/E multiples, the idea that companies with substantial and attractive current investment opportunities lengthen their duration, and why the distinction between growth and value is muddled.
• It is important to remember that returns on invested capital eventually drift lower due to factors such as competition, maturation, obsolescence, and disruption.
• Long-duration assets are very sensitive to changes in the discount rate. In an environment of low expected returns, the stocks of companies with long-term investment opportunities are worth substantially more than they were in an environment of higher expected returns.

RISK CONSIDERATIONS

There is no assurance that a Portfolio will achieve its investment objective. Portfolios are subject to market risk, which is the possibility that the market values of securities owned by the Portfolio will decline and that the value of Portfolio shares may therefore be less than what you paid for them. Market values can change daily due to economic and other events (e.g. natural disasters, health crises, terrorism, conflicts and social unrest) that affect markets, countries, companies or governments. It is difficult to predict the timing, duration, and potential adverse effects (e.g. portfolio liquidity) of events. Accordingly, you can lose money investing in this Portfolio. Please be aware that this Portfolio may be subject to certain additional risks. In general, equities securities’ values also fluctuate in response to activities specific to a company. Investments in foreign markets entail special risks such as currency, political, economic, market and liquidity risks. The risks of investing in emerging market countries are greater than risks associated with investments in foreign developed countries. Privately placed and restricted securities may be subject to resale restrictions as well as a lack of publicly available information, which will increase their illiquidity and could adversely affect the ability to value and sell them (liquidity risk). Derivative instruments may disproportionately increase losses and have a significant impact on performance. They also may be subject to counterparty, liquidity, valuation, correlation and market risks. Illiquid securities may be more difficult to sell and value than public traded securities (liquidity risk).