To Our Investors and Friends,
The S&P 500 Index increased 2.9% in August, again led by mega cap growth stocks that posted mid- to high-single-digit returns. Oil fell 6.4% to almost $69 a barrel as both OPEC supply increases and COVID-19 related demand declines pressured the commodity. The 10-year Treasury bond increased six basis points to 1.3%, as did the spread between the 2- and 10-year, ending the month at 110 basis points, a five-basis point expansion. The Bloomberg 1000 Growth Index expanded 3.42% for the month. Both value and small cap indexes performed slightly worse. The Bloomberg 2000 Growth Index expanded 2.38% in the month, the Bloomberg 1000 Value Index rose 2.04%, and the Bloomberg 2000 Value Index increased 1.92%.
Our summer reading included William Frey’s Diversity Explosion: How New Racial Demographics Are Remaking America, a deep dive into one of the biggest drivers of change in the United States. -- demographics. In fact, the US has been moving from a largely white population in 1970 to one with no racial majority expected mid-way through this century (see chart below). More importantly, is the country’s Asian, black, and Hispanic populations are driving US population growth. Immigrants from both Central America and Asia over the last several decades are the primary driver of demographic growth in the United States, as compared to the white population that has been stagnant for decades and is expected to shrink going forward. This demographic change is quite meaningful from a growth perspective. Frey estimates that the buying power of both the Hispanic and Asian populations has gone up approximately 200% in the last 20 years and is now a rapidly growing 17% of the US economy.
Unlike the stagnating economies of Europe and Japan, the US economy is significantly benefiting from its diverse population. It is clear to us that US companies must focus on all consumers in order to grow. They must also make sure that their employee base is as diverse as their customer base. “Between 2010 and 2030, the primary labor force age population will experience a net loss of 15 million whites; at the same time, it will gain 27 million racial minorities”. As Frey further explains, “new minorities add needed youthfulness that brings with it innovation and an entrepreneurial spirit.” Those companies that do not embrace diversity are likely to face significant growth headwinds in the years ahead.
As do many books that educate us about the world, Frey’s book encouraged us to re-examine the cultural diversity within our portfolio of companies. It should come as no surprise that our leading investments pursue both a diverse customer base and a diverse work culture. We believe that this diversity strengthens their businesses and reinforces a virtuous growth dynamic that has the potential to pay dividends for years to come.
All the best to you,
Arthur K. Weise, CFA