Numbers not the narrative – Sean Peche

*This content is supplied by Ranmore Global

Written by Sean Peche, Ranmore Global Portfolio Manager*

First appeared on LinkedIn


Something really interesting is going on – potentially concerning for most portfolios.

The MSCI World Information Technology sector underperformed the MSCI World Index by 4.11% over the past two weeks.

-4%, that’s not much.

Hang on. This index has a market cap of $12trn, containing giants like Apple, Microsoft & Nvidia.

Which are also giants in the MSCI World Index, the benchmark that it underperformed.

The under-performance v the non-giants in the MSCI World Index is even greater…

And we’re only talking about two weeks here!

Such levels of underperformance have only occurred 5% of the time since the beginning of 1999.

AND

Only six times since the beginning of the bull market in 2009.

Do I have your attention now?

Yes.

But why is this happening? I thought the “playbook” was supposed to be:

Low inflation means low-interest rates, which means we buy go-go technology.

And last week, we got a low inflation “print”, AND here we have an index full of all the AI beneficiaries.

But there was no “go-go”.

I did say this was “interesting”…

Speaking of that playbook, I assume you’ve noticed that when inflation was 9% in June last year, the US 2-year was 3%.

But now, with inflation at only 3.2%, the 2-year has RISEN to 4.9%…

Yes, I didn’t think it would play out like that …

Don’t worry. Most didn’t.

That’s why we don’t bother with macro forecasts.

We know we aren’t going to get every call right, but when we get them wrong, we prefer it to be in 2%-3% positions.

Not a +20% macro call…

But I think you’ll find the reason lies in Supply and Demand.

Explain.

Well, maybe, just maybe, DEMAND for hyped-up tech is finally exhausted.


On 18 July, the FT ran an article saying the giant fund managers have run into strict regulatory limits on these tech stocks (see comments).

Which makes you wonder who will buy the SUPPLY of the tech share options from staff cashing in …?

There’s seemingly no end of SUPPLY of treasuries (see FT article in comments).

Personally, I find neither 4.9% Treasuries nor 2-3% FCF-yielding tech stocks enticing.

Yes, but they’re “great companies” and “growing”.

Apple hasn’t grown revenue or operating income in 3 quarters, so a big “No Thanks” to that one on 30x earnings.

And let’s blame QE for us all forgetting that.

GREAT BUSINESSES DO NOT ALWAYS MEAN GREAT SHARE PRICE PERFORMANCES.

Coke has always been a great business, but had you bought it in August 1998, by October 1999, you were down 46%.

Buying in a Jan 2008 “sugar rush” caused you to lose 42% by Feb 2009.

Now you’ll recall I said the news was “potentially concerning”.

Yes

Well, the average return one year after periods of the MSCI World IT underperformance was…

Minus 16%.

Wow!

Hey, it’s better than the median loss of -30%.

What’s your holding in IT stocks?

Only 2%.

I did say “most portfolios”

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