A good place to fish
21 July 2023
It's no secret: since the start of the year, the performance of the main US indices has been driven by a few big names. The S&P 500 "market cap weighted*" is at +20%, while its "equal weighted*" counterpart is at +10% (since 12/31/2019, they are at +50% and +40% respectively). For the Nasdaq, we are respectively at +45% and +26% in 2023 (and +87% and +57% since 2019). A clear disconnection takes place in 2023.
The phenomenon is comparable between the S&P 500 and the Russell 2000, which includes small caps: +20% and +14% in 2023 (since 2019 +50% and +25% respectively). A first decoupling took place in November 2021, then a second in early 2023: the average performance gap since 2019 has risen from 10 points to over twenty.
In other words, the big get bigger and the small get left behind. "A tale of two markets, to quote Dickens.
We can mourn... or rejoice. We'll take the second option. A market like this, where all the attention is given to a few names, necessarily creates opportunities. Of course, as always, you need to be cautious before committing yourself.
With this in mind, we increased our exposure to Capri Holdings this week. Although there are some headwinds this year, we believe that the quality of its brands (Michael Kors, Versace and Jimmy Choo) will enable it to significantly improve its results over the medium term. Combined with the current low valuation, the result could be formidable.
Graham and Dodd pointed to Horace in their 1934 Security Analysis: "Many shall be restored that now are fallen and many shall fall that now are in honor". We think that's still the case, and that we have a good place to fish.
*Market cap weighted: the weight of each company depends on its market capitalization.
*Equal weighted: each company has the same weight in the index
Disclaimer
This presentation is a promotional document. The content of this document is communicated by and is the property of Monocle Asset Management. Monocle Asset Management is a portfolio management company approved by the Autorité des Marchés Financiers under number GP-20000040 and registered with the ORIAS as an insurance broker under number 10058146. No information contained in this document should be construed as having any contractual value. This document is produced for information purposes only. The prospects mentioned are subject to change and do not constitute a commitment or a guarantee. Access to the products and services presented here may be subject to restrictions for certain persons or countries. Tax treatment depends on individual circumstances. The fund mentioned in this document (Monocle Fund SICAV) is authorized for marketing in France and possibly in other countries where the law permits. Before making any investment, it is advisable to check whether the investor is legally entitled to subscribe to the fund. The risks, costs and recommended investment period of the funds presented are described in the KIDD (key investor information documents) and the prospectus, available free of charge from Monocle Asset Management and on the website. The KIDD must be given to the subscribers before the subscription. Past performances are not a reliable indicator of future performances. Monocle Asset Management cannot be held responsible for any decision taken or not taken on the basis of information contained in this document, nor for the use that could be made by a third party. The investor may lose all or part of the amount of capital invested, as the funds are not capital guaranteed.
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