Investors in US equities are facing tricky market conditions. To help stay focused in today’s environment, we’ve outlined five “plays,” or investing principles, for identifying the long-term drivers of a company’s business, which should foster sustainable growth.

After the recent correction, equity managers can access stocks of stronger companies at attractive valuations to better position a portfolio for long-term investment performance. By using research to focus on the long-term drivers of a company’s business—and with a disciplined approach to portfolio construction—we believe investors can find silver linings in cloudy US equity markets by following a playbook of five clear investing principles (Display).

Play 1: Be on the right side of change: Changes in technology or regulation, or structural shifts in specific markets, are excellent sources of growth potential—even in an earnings-constrained world, in our view.

Play 2: Look for sources of secular growth: Identify growth trends that aren’t held hostage to a country’s macroeconomic fortunes.

Play 3: Find businesses that control their destinies: Companies with better products, superior operating execution and more responsible financial behavior are likely to exercise a greater degree of control over their own fate.

Play 4: Don’t confuse price momentum with business momentum: There are countless reasons to explain why share prices rise or fall sharply. It’s not always a sign of the strength or weakness of the underlying business.

Play 5: The best defense is a solid offense: Popular safe havens in the markets aren’t always as secure as they might seem. Be creative when searching for stocks that can withstand volatility.

In the coming weeks, we’ll publish additional blogs providing more detail on each of the plays. All five plays share a common denominator: they’re aimed at finding companies with sustainable growth prospects in a volatile, low-growth world. While relatively few companies fit this profile, our research suggests that investors who find them can enjoy outsize returns (Display).

When volatility strikes, it’s hard to stick to an investing playbook. Just like a football team that’s losing an important game might abandon a plan and improvise in the hopes of staging a recovery, investors under duress can be tempted to shift a portfolio or allocation in response to market surprises, while losing sight of their strategic goals.

It usually doesn’t work. Staying disciplined in the face of adversity is more likely to yield better results, in our view.

Of course, there are many different ways to implement our investing plays in the US equity market. A growth-centric manager can use them to find high-return, cash-generative businesses with clear paths to implement their strategy. An unconstrained manager can use them to create a portfolio of companies that balances high-quality cyclical and noncyclical holdings.

The playbook can also be used to create a concentrated equity portfolio of a very small group of stocks with unique, differentiated business advantages. For a thematic approach, a portfolio manager can apply these ideas to navigate disruptive trends that are creating big opportunities in new markets. With these concepts in mind, we believe investors can find the right approach to capture excess returns over long time horizons, no matter how unruly markets are.

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.

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