BCA Weekly Commentary 7/31/20
SUMMARY. The gap between valuations between technology and cyclical names (which our models are overweight) continues to grow. In part this could be a reflection of the unprecedented money printing which historically flows into higher risk technology names and in possibly tied to 2nd wave concerns as cases continue to rise. Although the growing valuation continues to warrant caution we remain focused on the potential driver of future growth that should benefit cyclical names which is phase 3 vaccine trials which have begun in earnest. We remind clients that past periods of massive money printing, technology lead markets higher and then economic growth resumed at least for a time. Time will tell if this occurs again.
INVESTMENT IMPACT. This week we increased our equity exposure somewhat, still underweight technology. Our exposure, continues to be weighted towards cyclical names which remain depressed relative to 52 week highs tied covid lockdowns as well as Brazil for the same reasons. There are TWO prevailing theories going into late Summer: 1) Election uncertainty and mounting covid-19 cases will result in markets to correct in Fall; 2) Focus remains on vaccine progress and once successful completion of at least one by October for a year end release a shift to cyclical names may occur as fear subsides. At this point, we see both points of view, thus our elevated cash levels and avoidance of relatively high valued growth names.
Our model portfolio performance has been updated on our website as of 7/31/20.
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