Sarat Sethi of DCLA said investors should look beyond mainstream momentum stocks to find high-quality growth opportunities [1].
This guidance comes as investors navigate volatile market conditions and a shifting interest-rate outlook from the Federal Reserve. Identifying growth outside the most crowded trades may provide a hedge against potential corrections in overvalued sectors.
Speaking on CNBC's "Squawk Box," Sethi, a managing partner and portfolio manager at DCLA, said current market trends and where sustainable opportunities exist [1], [2]. He said the current narrative surrounding momentum stocks may obscure other viable paths to growth [3].
Sethi said the importance of selecting high-quality assets that do not require paying a premium price [3]. By avoiding the most popular momentum plays, investors can potentially find undervalued companies with strong fundamentals that are not yet captured by the broader market trend [3].
The discussion also touched upon the Federal Reserve's outlook on interest rates [1]. Because rate changes significantly impact the valuation of growth stocks, Sethi said the current environment requires a more nuanced approach to portfolio construction [1].
Rather than following the crowd into mainstream momentum, Sethi said investors should prioritize quality and value [3]. This strategy aims to capture growth without the risks associated with overextended valuations [3].
“Investors should look beyond the mainstream momentum”
Sethi's perspective suggests a rotation away from 'crowded trades'—stocks that have risen primarily because of trend-following behavior rather than fundamental value. In a climate of interest-rate uncertainty, this approach prioritizes capital preservation and long-term stability over the high-risk, high-reward nature of momentum investing.
