Full episode: Market Call for Friday, February 14, 2020
Kim Bolton, president and portfolio manager at Black Swan Dexteritas
Focus: Technology stocks
Up until Feb. 13, both the S&P 500 and the NASDAQ were up 15 per cent from their early October lows. It’s been another typical run that has been quite common during the entire bull market. The S&P and NASDAQ have had 16 rallies of over 10 per cent. Ten out of those 16 experienced an average 10-per-cent correction soon after.
There are plenty of issues to worry about that could trigger such corrections. Your BSD team does not know when the next one will occur, but it will always be prepared for it. BSD uses a disciplined short equity index derivatives overlay to limit the portfolio’s volatility, minimize potential drawdowns and potentially contribute alpha. This “insurance policy” allows BSD to focus on those global technology themes, trends and leadership that have long and lucrative runways. Your BSD Global Tech Hedge Fund is currently 85-per-cent invested across 15 technology vendors and four tech ETFs, with 15 per cent cash and a 70 per cent short equity indexes hedge on our basket of stocks and ETFs. Our elevated level of hedge speaks to the overbought nature of the stock market and the woes ahead for global economic growth.
The million dollar question is what will it take? When will this recent stock market rally end? The “when” is difficult to pinpoint, but the catalyst will come in some form of Federal Reserve taper in their liquidity injections. Let me explain: Starting in mid-October 2019, the Fed has added just over $500 billion in Fed liquidity (roughly 70/30 “not quantitative easing” and repo of varying lengths, respectively). We now know that about 5 per cent of the Fed liquidity was invested in a vast pool of equities. This signaled other market participants to increase their risk exposure, so they followed the leader. We believe the Fed repo activity will eventually go to zero and when “not QE” reaches somewhere in the $500 to $600 billion range, it all stops. If previous QE rounds are any indication, the Fed will ease out of it by tapering slowly, and we could see a significant correction. In QE 2, the Fed began tapering in July 2011, basically putting a stop on it by the end of September 2011. The S&P 500 fell 15 per cent during this period, and the banks reduced their exposure by 29 per cent that quarter.
The taper is coming. Be prepared for it.
Sold Shopify (Top Pick from Oct. 8) on Feb. 12 at US$578.74 as it achieved our price target.
APPLIED MATERIALS (AMAT NASD)
TAIWAN SEMICONDUCTOR (TSM NYSE)
WALT DISNEY (DIS NYSE)
PAST PICKS: JAN. 22, 2019
MICROSOFT (MSFT NASD)
- Then: $105.68
- Now: $184.80
- Return: 75%
- Total return: 77%
XILINX (XLNX NASD)
- Then: $90.45
- Now: $90.28
- Return: -0.2%
- Total return: 2%
YASKAWA ELECTRIC (YASKY OTC)
- Then: $52.87
- Now: $70.76
- Return: 34%
- Total return: 36%
Total return average: 38%
Black Swan Dexteritas Global Technology Fund
Performance as of Jan. 31, 2020
- 1 month: 0.92% fund, 2.0% index
- 3 months: 0.59% fund, 16.7% index
- 3 years: 26.40% fund, 22.9% index
Returns are based on reinvested dividends, net of fees and annualized.
TOP 5 HOLDINGS
- Alphabet: 3.3%
- Infineon Technologies: 3.1%
- Amazon.com: 3.0%
- Visa : 2.7%
- Cisco Systems : 2.6%