The market narrative supporting the strong stock market rally is about optimism over vaccine development, regional re-openings and short coverings. We are suspect of the market’s enthusiasm, but we must respect it so as to not fight the tape. BSD lagged the broad market equity indices in April and May, but year-to-date the BSD Global Tech Hedge Fund stands out with a positive return of 20.9 per cent as of the end of May, while our 50/50 NASDAQ/Russell Benchmark was down 5.3 per cent, the S&P 500 was down 5.8 per cent, and the Hedge Fund Index negative 3.7 per cent year-to-date. We have positioned the BSD Global Tech Hedge Fund expecting more market volatility; the Fund is 92 per cent invested across tech vendors and tech end-users, with a 67 per cent short equity indices hedge that will incrementally grow if the market deteriorates. The hedge is composed of short equity indices futures and Nasdaq put options that will increase if the market downturn resumes.
Our team is skeptical of the elevated stock market valuations as measured by multiple metrics. 96 per cent of S&P 500 stocks are now sitting above their 50-day moving averages as of May 31, 2020. Since 1990, there have only been four other days with a such a high reading. The Q-Ratio (the market value divided by the replacement value of its assets) is a timely valuation metric when market participants can’t predict future corporate earnings or revenues. It shows that today’s valuation has only been surpassed twice over the past 100 years. Excessive valuations don’t indicate when markets will correct, but it’s a bad sign in combination with today’s ominous technical backdrop.
Our fund will be protected from any downside market drawdowns, but if the markets continue to defy the ‘actual economy’ and climb higher, we will marginally participate in those gains. The BSD credo – prosperously navigating unexpected events with great skill and agility – defines our ability to outperform.
UPDATES
SHOPIFY:
Bought at US$311.74 on Oct. 8
Sold at US$578.71 on Feb. 12
Shopify achieved our price target. We took profit on this 3.5 per cent position.
TOP PICKS
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| PYPL NASD | Y | Y | Y |
| ZS NASD | Y | Y | Y |
| BL NASD | Y | Y | Y |
PAST PICKS: June 12, 2019
Adobe (ADBE NASD)
- Then: $276.84
- Now: $403.38
- Return: 46%
- Total Return: 46%
Aptiv PLC (APTV NYSE) *Sold December 20th 2019 at US$98 we reached our price target.
- Then: $74.89
- Now: $78.93
- Return: 5%
- Total Return: 6%
Oracle (ORCL NASD)
- Then: $53.62
- Now: $54.11
- Return: 1%
- Total Return: 3%
Total Return Average: 18%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| ADBE NASD | Y | Y | Y |
| APTV NYSE | N | N | N |
| ORCL NASD | Y | Y | Y |
Website: https://blackswandexteritas.com/
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