Fortune - USA (2019-12)

you see the greatest risks and greatest opportunities in 2020?

BROWN: I genuinely believe that most of the market is expecting

some extreme move out of interest rates. They either think this

whole thing is a fake-out and there’s going to be a bout of inflation,

or that rates are headed to zero. But what if there’s just more of this

as far as the eye can see? There have been 100-year spans where

there wasn’t much volatility in interest rates. So it’s entirely pos-

sible that people with extreme opinions will lose and people that

But you know what? Risk management

isn’t enough to catapult a company into

long-term sustainable growth. So the best

companies are playing offense. They’re taking

market share because they’re helping their

customers become more efficient and more

productive. They’re helping their customers

save money. Saving money never goes out of

style no matter where we are, in a peak or a

trough.

SUBRAMANIAN: We’ve been doing a lot of work

on ESG. If you look at the balance sheet of

the average S&P company, over 70% of assets

are intangible. These are assets that you can’t

analyze using traditional measures, and they

are more tied to reputation, intellectual prop-

erty, and metrics that aren’t necessarily what

we learned about in business school.

So for example, think about a tech com-

pany: How happy its talent is is critical to the

success of that corporation, because the big-

gest risk is brain drain and losing your smart

people to a competitor. We found that the

companies with the best employee satisfaction

scores tend to have higher returns on equity

than their peers with disgruntled staff.

BROWN: I would be careful with that because a

lot of the happiness is based on what the stock

price is doing, and that could turn on a dime

and almost be a coincident indicator. I’m sure

there was a lot of Champagne being popped

all summer long with WeWork.

SUBRAMANIAN: But one of the things we found

is that employee satisfaction is actually a lead-

ing indicator of market performance.

STRANGE: And this workforce is very mission-

driven. The answer to the question “Do I work

for a company whose mission I really believe

in?” is a very good sign of retention.

FORTUNE: A final question for everyone: Where do

ROUNDTABLE

Three Things to Feel Excited

About, and Three to Worry

About, for 2020

GET EXCITED ABOUT

Health care

An aging global popu-

lation means more

demand for medical

devices and tests, and

opportunities for com-

panies such as THERMO

FISHER and DANAHER.

Financials

Their balance sheets

are in far better shape

than before the last

recession, and their

stocks are cheap.

Doing more with less

AUTODESK and

ASPEN TECHNOLOGY

are among the tech

companies helping

industrial companies

conserve resources.

WORRY ABOUT

Corporate debt

A spate of mergers

and stock buybacks

have saddled many

companies with high

debt—and their costs

could rise if interest

rates climb.

A regulation revival

Democratic candidates

are promising tighter

rules on finance and

energy, which could

mean a rough election

year for those sectors.

Indexes gone wild

The dominance of index

funds could exacerbate

market dips by causing

liquidity problems for

smaller companies.

“The best companies are playing offense. They’re

taking market share because they’re helping their

customers become more efficient.” Karina Funk • Brown Advisory