Mackenzie Minute: November 10, 2017
Jonathan Norwood, Portfolio Manager with the Mackenzie Cundill Team, looks at the elephant in the room of equity markets, especially US markets.
JONATHAN NORWOOD: For the past couple of quarters, it’s really been a tale of two styles: growth and momentum, and they have considerably outperformed value. Value strategies did incredibly well up until the end of last year and really up until the end of February 2017. And then as the reflation trades started to recede in the US value strategies gave back a fair bit of their outperformance.
As I mentioned, value strategies have underperformed year-to-date but there is still two months left in the year and we’re very optimistic about the way our portfolios are positioned. So we’re going into Q4 overweight US banks, overweight energy stocks and we are overweight, by virtue of our bottom-up process, stocks that tend to be heavier taxed in the US. We think that if the Trump administration is able to get through some form of tax reform, it will benefit our positioning considerably.
The elephant in the room is the fact that there are a very small group of companies that are driving the overall market higher, especially in the US. When you look at the valuations of these companies, they’re trading in some cases at 200 times their earnings. And what’s interesting is if you look at the insider buying for all of these names, whether it’s Facebook, Amazon, Netflix, Google, Apple, nobody is buying stocks so the insiders of these organizations are not buying their own stock and, in fact, Jeff Bezos, who runs Amazon, sold about a billion dollars’ worth of stock last week. Process and principles are very important to us so we are going to follow those, irrespective of the valuations of the overall market and, in particular, a very small group of companies that are driving the overall market higher.