SUMMARY. We remained focus of evidence of successful vaccine trials which in our view holds the key to future economic growth. At the same time we recognize, the gap between valuations between technology and cyclical names (which our models are overweight) continues to grow. The driver of the former appears to be the flood of money in the monetary system which is finding its way in speculative assets while cyclical assets the focus appears to be vaccine trials. During the prior weeks 3 have entered phase 3 trials and have received government funding to begin pre-production planning ahead of approval.
INVESTMENT IMPACT. This week we increased our equity exposure further, still underweight technology. We initiated positions in several companies we deem to benefit from successful vaccine trials and resumption of economic reopening. This action was not only driven by fundamental research on the specific companies, but recognition of the positive data points on vaccine trials underway. The vast disparity in valuations across sectors of the economy can hold both opportunity and risk. One theory is that as vaccines progresses towards production in late 2020, rotation from technology to cyclical names will occur. The second is, the economic recovery will be slower despite vaccines and eventually a valuation correction will occur especially with political risks evident with Fall elections. To manage risk, we remain valuation sensitive favoring the first theory above, with some weariness given high levels of speculation on those historically deemed riskier assets.
Our model portfolio performance has been updated on our website as of 7/31/20.
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