Kim Bolton, president and portfolio manager of Black Swan Dexteritas
Focus: Technology stocks

UPDATES:

We’ve sold a Top Pick within the first year of recommending it:

• Stock name: Sea Ltd. (SE NYSE)
• Buy Price: US$44.10 - March 25, 2020
• Sell/Reduce price: US$91.74 - June 12, 2020
• Why we sold or reduced it from holdings: Sea Ltd. achieved our price target; we took profit on this 3.5% position.

MARKET OUTLOOK

We have positioned the BSD Global Tech Hedge Fund expectating more market volatility; the fund is 74 per cent invested across a couple dozen tech vendors and tech end-users, with a 77 per cent short equity indice hedge on the invested portfolio that will incrementally grow if the market deteriorates. Our Fund will be protected from market drawdowns, but if global stock markets continue to defy the ‘actual economy’ and climb higher, we will marginally participate in those gains. At the time of this analysis, we're still up over 22 per cent year-to-date, versus +4.7 percent for the S&P 500 and +9.5 per cent for the 50/50 Nasdaq/Russell benchmark.

Prior to the pandemic, a paradigm shift towards digitalization and servitization of the economy was already underway. Current events have accelerated the paradigm, as evidenced by the marked shift in spending towards digital businesses. In a contactless world, the vast majority of interactions with customers and employees must take place virtually. With rare exception, operating digitally is the only way to stay in business through mandated shutdowns and restricted activity. The BSD Global Tech Hedge Fund is fortunately invested across many of those vendors supplying these digitalization products and services, plus some of those end-user companies that have embraced this digital transformation. The stock market rally of the last four months reversed much of the March oversold condition, but many of those technology vendors have become detached from their underlying fundamentals and those of the broader market. At this juncture, one of two things can happen to make the ratio less overbought:

1. Stocks other than the tech vendors can rise faster than the tech vendors; or, 
2. Technology vendors can fall.

Given how much technology vendors have meant to the broader market indices, investors should pray for the former.

Top Picks

Twilio (TWLO NSYE)

Fastly Inc. (FSLY NYSE)

Intel Corp. (INTC NASD)
 

Alibaba (BABA NASD)

• Then: US$167.48
• Now: US$258.42
• Return: 54%
• Total Return: 54%

Zillow Group (Z NASD)

• Then: US$32.97
• Now: US$82.24
• Return: 149%
• Total Return: 149%

Alteryx (AYX NYSE)

• Then: US$141.92
• Now: US$111.09
• Return: -22%
• Total Return: -22%

Total Return Average: 60%