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Real estate investors know to “beware good houses in bad neighborhoods,” says Christopher Lees, co-manager of the
JOHCM Global Equity fund. This wisdom is every bit as true for equity markets, where neighborhoods are influenced not by school quality nor commute times, but by market cycles, macroeconomics, and secular trends.
Think of the average bank stock since the financial crisis, a period marked by low interest rates and quantitative easing. “Even the best banks haven’t been particularly good investments because the neighborhood was so bad,” says Lees, 53. Contrast that with the digital economy, an area so desirable that even imperfect companies have seen their stock valuations soar.