The Case for High-Growth Innovation Stocks in a Resilient Macro Environment

The global economy in 2025 continues to defy expectations. While market participants grapple with a tug-of-war between cautious sentiment and robust fundamentals, the resilience of consumer spending, GDP growth, and employment metrics has created a fertile ground for innovation-driven equities. In this environment, the Virtus Zevenbergen Innovative Growth Stock Fund, managed by Anthony Zackery and Joe Dennison, exemplifies a strategic approach to capitalizing on AI-driven and disruptive growth opportunities. By balancing macroeconomic pragmatism with a high-conviction, bottom-up investment philosophy, the fund navigates current challenges while positioning for long-term gains.

Strategic Positioning in AI-Driven Innovation

The fund's focus on AI and transformative technologies is not merely speculative but rooted in the structural shifts reshaping global industries. As portfolio manager Joe Dennison notes, "The AI buildout is fueling both investment and realized revenues, particularly in the technology sector, which continues to lead broader market performance" according to the fund's Q3 update. This observation is borne out by the fund's holdings, including NVIDIA Corp and Tesla Inc, which are central to its thesis of capturing disruptive innovation.

NVIDIA, a cornerstone of the fund's portfolio, has emerged as a foundational player in the AI stack. Its graphics processing units (GPUs) are critical for training and deploying AI models, a demand that has surged as countries like Canada, France, and India invest in "sovereign AI capabilities" according to industry analysis. According to a report by EDGE ETF, NVIDIA's strategic emphasis on localized AI infrastructure aligns with its vision of expanding corporate and governmental adoption, positioning it to dominate the chipmaking sector by 2025 according to industry analysis. For Zevenbergen, NVIDIA's role in enabling AI-driven revenue growth across industries-from healthcare to autonomous vehicles-makes it a compelling long-term holding.

Tesla, meanwhile, represents a different facet of innovation. The fund's 7.27% allocation to Tesla as of June 30, 2025, reflects its confidence in the company's ability to navigate regulatory and market headwinds. During the third quarter, Tesla's stock rebounded on the back of increased demand for electric vehicles ahead of expiring tax credits and a $1 billion open-market stock purchase by CEO Elon Musk according to the fund's Q3 update. Dennison and Zackery emphasize that Tesla's success hinges on its leadership's ability to execute on operational and profitability milestones, a factor they view as critical for sustaining long-term growth.

Navigating Underperformance in Mega-Cap Tech

Despite these strengths, the fund has faced headwinds in Q3 2025 due to its underexposure to mega-cap technology stocks. As the S&P 500 and other indices reached all-time highs, driven largely by the dominance of a few large-cap tech firms, Zevenbergen's concentrated portfolio-focused on high-conviction, disruptive innovators-lagged. However, this underperformance is not a shortcoming but a reflection of the fund's disciplined approach. As Zackery explains, "The economy has not yet shown signs of being a house of cards creaking under the weight of inflation and nationalistic policy. The Fed's signals to reduce restrictive policy could support continued favor for risk assets" according to the fund's Q3 update.

The fund's strategy prioritizes long-term fundamentals over short-term index alignment. For instance, while it maintains positions in companies like The Trade Desk and MercadoLibre, it avoids overconcentration in the largest index constituents, instead seeking out smaller, founder-led firms with transformative potential according to the fund's product page. This approach, though occasionally at odds with market trends, aligns with the fund's mandate to identify companies that can benefit from structural shifts, such as the AI revolution or the electrification of transportation.

Macro Resilience and the Path Forward

The fund's macroeconomic outlook is cautiously optimistic. Zackery and Dennison highlight that "persistent market caution coexists with strong earnings and a resilient economic backdrop" according to the fund's Q3 update. This duality-where "hard data" (GDP, wages) and "soft data" (consumer sentiment) diverge-creates a complex but navigable landscape. The Federal Reserve's potential pivot toward accommodative policy further supports risk assets, particularly those tied to innovation.

For investors, the key takeaway is clear: in a world where macroeconomic resilience persists despite political and economic uncertainties, high-growth innovation stocks offer a compelling avenue for capital appreciation. The Virtus Zevenbergen fund's strategic emphasis on AI-driven equities, coupled with its disciplined, long-term approach, positions it to thrive in this environment. While short-term underperformance may occur, the fund's focus on fundamentals-revenue growth, earnings momentum, and disruptive potential-ensures its alignment with the transformative forces shaping the global economy.

As Dennison aptly summarizes, "Markets have still reached all-time highs for major indices during the quarter, supported by fundamentals and the ongoing AI buildout. The wall of worry remains, but innovation continues to drive value" according to the fund's Q3 update. In a resilient macro environment, this philosophy may well prove to be the most enduring investment strategy of all.