Getting Real About Interest Rates & Inflation

Why investing in high-quality growth businesses could be the best defense against macroeconomic headwinds

Expected Returns: Earnings Growth vs. Economic Regimes

With the new year underway, much attention has been centered on the fact that U.S. inflation hasn’t been this high since the early 1980s, as seen below. In addition, expectations of tighter monetary policy have cast a cloud of uncertainty over equity markets, igniting bouts of volatility.

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Personal Consumption Expenditures (PCE) & U.S. Fed Funds Rates

Chart Depicting Personal Consumption Expenditures (PCE & US Fed Funds Rates

Source: FRED, Federal Reserve Bank of St. Louis. Shaded areas indicate periods of U.S. recession. As of December, 31, 2021.

Despite the uncertain path of inflation and interest rates, an internal analysis illustrated in the whitepaper failed to find a statistically significant relationship between these two forces and our flagship Polen Focus Growth strategy’s returns over the course of its 33-year historical track record.

This fact underscores why, at Polen Capital, our investment approach is anchored on the robust long-term earnings growth of our portfolio companies rather than focused on positioning the strategy for short-term market preferences.

Instead of attempting to predict the direction and magnitude of inflation and interest rates, our objective is to invest our clients’ capital in what we view as competitively-advantaged businesses capable of thriving under different economic environments.

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Important Disclosures
The information in this document is provided for informational purposes only. Opinions and views expressed constitute the judgment of Polen Capital as of December 31, 2021, may involve a number of assumptions and estimates which are not guaranteed, and are subject to change without notice. Although the information and any opinions or views given have been obtained from or based on sources believed to be reliable, no warranty or representation is made as to their correctness, completeness or accuracy. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice, including any forward-looking estimates or statements which are based on certain expectations and assumptions. The views and strategies described may not be suitable for all clients. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations. This document does not identify all the risks (direct or indirect) or other considerations which might be material to you when entering any financial transaction.