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Q1 2021 Newsletter

By Team

Approximately a year ago, we rallied our clients and potential clients to add more equity allocation in their portfolio. We reasoned that our stocks had been so cheap and we believe economic recovery would be faster than expected given the multiple efforts to find the cure. What we didn't know was when the market would bottom. We've warned you and will warn you again: nobody knows! It was plain luck. Click here if you want to read more about it.

Now we are calling our clients again to use their dry powder. But before we delved deeper, let us review the background.

A combination of the progress of reopening the economy and the new Covid-19 relief package led to rising expected inflation and, more noticeably, increasing bond yield. The 10-year US Govt bond yield rose from below 1.0% by 2020 to 1.5% recently. Forecasters surveyed by Bloomberg expect inflation to temporarily rise above 2% in the second quarter of 2021. After worrying about inflation and yield, the next should be Fed tapering. That means guessing when the Fed will scale back massive asset purchases. As the Fed stops flooding the market with liquidity, people expect risk appetite will dry.

The ‘tech’ stocks are one of the first victims of liquidity dry-up. Last year, the tech stocks were the clear winners. Nasdaq Composite gained 44%, triple the return on the S&P 500. Chip stocks gained 54%, cloud software gained 71%, ARK Innovation ETF jumped 153%, and ARK Genomic Revolution ETF almost tripled. In tech, everything worked thanks to the work-from-home shifts, liquidity floods, and the lack of alternatives for growth investors. But now, it seems the other way around. People are back to work, the Fed is expected to dry up the liquidity, and growth can be found everywhere.

Against this backdrop, the Signature portfolio dropped by -2.58% year-to-date. Our long-time clients may be well prepared to see such volatility due to our heavyweight towards ‘tech’ stocks. It doesn’t mean we are fanatics of ‘tech’ stocks. It simply because our inclination towards companies with a substantial competitive advantage and sustainable growth often leads us to ‘tech’ stocks.

Should we change our strategy? No.
First, we still believe in the competitiveness and sustainability of our portfolio. Nothing wrong with the companies. Some of them even set to become the new industry leader in the post-Covid world.

Second, the Fed taper tantrum is just it: a tantrum. Bernanke’s statement in May 2013 indeed frightened the markets and created volatilities. Still, Nasdaq Composite gained 26% for the rest of 2013 and made another 12% in 2014. The market was quick to welcome the idea of reduction in quantitative easing.

We are investing in companies, neither the economy nor the sentiments. In the recent selloff, the sentiments are against us. Rising interest rates and expected inflation hit the growth stocks, a category where most of our portfolio fits. Meanwhile, the business trajectory of our companies is as robust as before. This selloff opens up an opportunity to size up our long-term portfolio.

No one favors a volatile portfolio, even though it is for the long-term investment horizon. We have taken the necessary steps to mitigate the impact of recent market volatility. We add several consumer companies that have been showing consistent growth. With the addition of several stocks, our portfolio becomes less concentrated. Our discipline in rebalancing the portfolio also helps mitigate the impact of market volatility. Moreover, we have hedging strategies that are ready to deploy in the face of significant market turbulence.

Our advice
Focus on your long-term financial goal. If you have excess cash, take this volatile moment as your advantage to size up your long-term portfolio.

Market volatility will be there forever for whatever reasons. Currently, people may expect another squeeze from the interest/inflation theme as the economy reopens. But who knows if the next pullback will be triggered by geopolitical risks lurking in the corner. If you have excess cash, that is your advantage to size up your bet with us.

DISCLAIMER

This publication or report has been prepared solely by Christmas Corporation. This publication or report may not be mechanically duplicated, photocopied or otherwise reproduced, in full or in part.

SourcesThis publication or report may be based on or contain information, such as opinions, recommendations, estimates, targets and valuations which stem from: publicly available information, Christmas Corporation's analysts, or other named sources.

Risk information. Past performance is not a guide to future performance. Estimates of future performance are based on assumptions that may not be realized. The investor must particularly ensure the suitability of an investment as regards his/her financial and fiscal situation and investment objectives. The investor bears the risk of losses in connection with an investment.

Limitation of liabilityChristmas Corporation assume no liability as regards to any investment, divestment or retention decision taken by the investor on the basis of this publication or report. 


Posted on: April 14, 2021

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