May 2021 performance update
Hi friends,
Here with a performance update for May. As usual, the key numbers for the month:
Prime: +1.21%
Select: -3.22%
S&P 500 (SPY ETF): -0.09%
Bogleheads Portfolio (80% VTI, 20% BND): -0.39%
After a couple of flattish months, I’m quite pleased to see Prime outperforming the market by about 130 basis points. The interesting big winner among the Prime set in the month was EXPD (+12.32%). EXPD—not Expedia; rather, Expeditors International of Washington—is a global logistics provider (e.g., air freight, ocean freight, etc.). That feels like a covid recovery story, so it’s interesting to see our algo picking it up. Another big winner this month was Maximum Integrated Products (MXIM, +6.39%), which makes circuits. If you’ve been following the global chip shortage in our “what we’re reading” blog posts, you may not be surprised to see the appreciation in that stock in the last month. But, again, interesting to see our algo picking it up. Recall, I push a button every month to select our picks (based on a formula that is qualitatively agnostic as to the daily news flow, but nevertheless aims to pick up on quantitatively meaningful news to the extent that news maps to value-relevant financial indicia).
Along these lines, worth calling out that our model’s #1 and #2 picks in the whole S&P 500 for June are direct diagnostics competitors Lab Corp and Quest. A pet theory on that without studying it closely: much of the world is still embroiled in the covid catastrophe, meaning these global diagnostics providers’ services remain much in need. Our model could essentially be communicating a view that markets are not correctly extrapolating an elevated growth outlook for these behemoths (counterpoint: the market could know something our model doesn’t capture, or simply have a different view as to the path of attenuation of the covid catastrophe globally).
Speaking of catastrophes, Select’s performance last month left something to be desired. That was largely driven by two picks getting hammered: Paycom (PAYC, -13.25%) and Cognizant Technology Solutions (CTSH, -12.04%). It’s a little foggy to me as to why. Both provide cloud services, so it could be part of the rotation out of high-technology stocks that market practitioners have been talking a lot about on CNBC and Bloomberg in the midst of the sector’s already-great 2020. Quantitatively, one story could be that these are long-“duration” stocks, meaning their values are particularly sensitive to changes in expectations about the level of Treasury rates. Given the evolution of the inflation outlook in the last month, one sort of has to imagine the market is anticipating future Fed rate increases to stymie the rising prices, which could have a particularly adverse effect on stocks like these.
As to macro factors more generally, it’s worth noting there are a lot of moving pieces in the macro outlook right now—from the drivers of continued low labor market participation, to the causes of rising price levels, to the merits of the current administration’s latest budget proposal, to the wisdom of the Fed’s continued monetary support, to the global covid outlook. I try to feature some of these topics in Stoney Point’s “what we’re reading” posts, but I do view these factors as mostly affecting asset allocation decisions (i.e., “Should I be in stocks or in gold or real estate or bonds?) rather than security selection decisions (i.e., given I’m going to be in stocks over a 3- to 5-year horizon, which stocks should I choose?”). My here’s here at Stoney Point are a little more focused on latter.
