Hiding From the Bear

VT Tyndall North American Fund

Hiding From the Bear

There can’t be too much doubt at this stage that there is an ongoing bear market in growth stocks. Since the Nasdaq peaked in November 2021 it is down about 17% as at the time of writing. The Ark Innovation ETF, which owns high growth tech stocks, is down around 60% from its peak in February 2020. There have been many individual stocks, which were large cap darlings of recent years, that have fallen precipitously from their respective peaks: Zoom Video -78%, Teladoc -78% PayPal -68%, and Shopify -63%... the list goes on. One of the key reasons that so many growth stocks have underperformed is because they were such big beneficiaries of the covid recovery in 2021.

As investors, where can we go? Although Tech gets all the headlines in investing terms, the US is a very broad and diverse market. Given Tech’s dominance, other sectors often get side-lined and almost discarded. The chart below shows the weighting of the Consumer Staples sector in the S&P 500 has sunk to levels not seen since 2000:

https://tyndallim.co.uk/wp-content/uploads/2022/02/naf25-02-2022.png
Consumer Staples is currently our biggest weighting in the Fund, and we like it for 3 key reasons: 1) it is under-owned and not expensive (in stark contrast to Tech) 2) it was not a beneficiary of the Covid recovery, unlike most other sectors. This means companies in this sector do not have the huge EPS and revenue comparisons that many others do. 3) Staples companies have been increasing prices just as their input cost inflation is peaking and rolling, meaning margin expansion in 2022. Staples are also a defensive sector and historically outperform when it’s time to batten down the hatches. I believe we are in such a time now and as this developing bear market continues to manifest, the time is right to be defensive and hide out in the Staples sector.
25th February 2022
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This content is intended for professional clients only.

Data source: Strategas Research Partners
Not for retail distribution – this document is intended for professional clients only
Disclaimer

WARNING: All information about the VT Tyndall North American Fund(‘The Fund’) is available in The Fund’s prospectus and Key Investor Information Document which are available free of charge (in English) from Valu-Trac Investment Management Limited (www.valu-trac.com). Any investment in the fund should be made on the basis of the terms governing the fund and not