Kim Bolton, president and portfolio manager at Black Swan Dexteritas
FOCUS: Technology stocks

MARKET OUTLOOK

A BSD research and portfolio management team’s model that gauges the macro and micro fundamentals, technicals, capital flow and geopolitical headwinds and tailwinds has gradually indicated increased warning signs of an imminent stock market correction. Fundamentally, there’s a disconnect between the stock market and earnings expectations. When evaluating the S&P 500 and the Nasdaq 100 on a growth-adjusted basis, we find that these indexes are more overvalued today than at any point in the past 40 years. Technically, the broad market indexes are trading between two-to-three standard deviations above their respective support levels; a mean reversion is inevitable.

The world’s central banks did manage to calm the March 2020 liquidity crisis and governments’ fiscal stimulus programs helped balance the goods and services supply/demand equation. Further fiscal and monetary stimulus programs appear to be off the table for now. These factors, combined with the geopolitical uncertainty of the U.S. election, changes the past five months of market tailwinds into market headwinds for the foreseeable future.

We have positioned the BSD Global Tech Hedge Fund with the expectation of more market volatility. The fund is 80 per cent invested across a couple dozen tech vendors and tech end-users, with a 70 per cent short equity indexes hedge on the invested portfolio that will incrementally grow if the market deteriorates. We’re still up over 21 per cent year-to-date, versus 2.75 per cent for the S&P 500 and 5.79 per cent for the 50/50 Nasdaq/Russell benchmark as of Sept. 18.

The bottom line: Our BSD Global Tech Hedge Fund will be protected from market drawdowns, but if the stock 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 in these uncertain markets.

UPDATE

Sold SQUARE (SQ NASD) Aug. 5, 2020. Square achieved our price target. We took profit on this 4.5 per cent position.

TOP PICKS

ACTIVISION BLIZZARD (ATVI NASD)

NVIDIA (NVDA NASD)

SPLUNK INC (SPLK NASD)

PAST PICKS: OCT. 1, 2019

SHOPIFY (SHOP NYSE)

• Then: $313.22
• Now: $912.45
• Return: 191%
• Total return: 191%

DATADOG (DDOG NASD)

• Then: $32.39
• Now: $82.50
• Return: 155%
• Total return: 155%

CYBERARK SOFTWARE (CYBR NASD)

• Then: $101.32
• Now: $97.08
• Return: -4%
• Total return: -4%

Total return average: 114%