Since the US Federal Reserve’s rate hiking cycle, the average price-to-earnings multiple on the S&P500 had adjusted from 22 times to 16 times, Mr Griffin said.
“We all underestimated inflation, interest rates,” he acknowledged. “The Fed has gone from saying interest rates in 2023 will be zero 18 months ago. Now they’re saying rates in 2023 are going to be 3.75 per cent.”
As a result of the pandemic-era’s dramatic macroeconomic reversal, Mr Griffin said he was watching three factors to help decide when to put the fund’s giant cash pile to work in global equities.
“The first is long-term [US 10-year Treasury] interest rates to peak,” he said. “We think that’s happened. Now there’s a risk of inflation hangs around and we have to hike rates longer. Zero-to-three has hurt, we’ve peaked at three [per cent]that’s good.”
Since touching 3.48 per cent in June, the US 10-year bond rate has fallen to 2.79 per cent.
However, Mr Griffin also wants to see earnings downgrades priced into companies’ valuations before deploying cash.
“That growth sell-off is largely done,” he said. “The bit that comes now is the real economy starts to roll over.
“So all that cyclical stuff that normally happens in a slowdown – is it going to be a mild or deep recession? No one actually knows. You can’t see through the valley because the downgrades are just beginning.”
Munro’s Global Growth Fund has lost about 19 per cent over the past six months, despite being weighted on the long side to tech stocks that have cratered in value.
Mr Griffin attributed the relative success to a decision to sell loss-making companies including Square, Spotify, HelloFresh, The Trade Desk and Atlassian more than a year ago as it expected the Fed to raise rates.
“Do you go back to this stuff today? No, you don’t,” he said. “The reality is you can buy [tech] monopolies here at incredibly good value. You can buy Visa, Microsoft at 23 times earnings. Nvidia close to 30. Amazon is very cheap at the moment.
“All these companies should grow through a downturn and set up as wonderful opportunities somewhere in the next one to six months, I’m not exactly sure where.”
The last factor Mr Griffin is waiting on is time. He said patience and prudence often proved to be investors’ friends in bear markets.
“It’s important to remember bear markets go for just over 300 days on average and fall 37 per cent. This one’s gone for just over 100 days and fallen 25 per cent at its peak. If you respect history, we could actually be only half-way through.
“In the end, the Fed will get their credibility back. Inflation will come down. You just have to work out how big the slowdown is going to be. In the long run stocks follow earnings growth.”