The Progressive Global Fund
Global markets remained choppy in December but managed to comfortably rally into year-end closing near or at all-time highs for many indices. While Omicron and inflation dominated news headlines, the impact to markets was much less violent compared to November.
We have been gradually rotating the portfolio out of growth into value which includes cyclically exposed sectors. Our positions exposed to cyclical sectors were in fact the biggest contributors to December performance, namely metals & mining, financials, and oil & gas. We remain invested in some growth stocks, specifically high quality growth stocks. Indeed, we re-initiated a position in Activision Blizzard (ATVI.US) which was a top pick in 2020. We sold Activision in February 2021 at levels about 40% above the current share price, and the stock has since fallen to attractive levels following what we believe to be short-term setbacks. We are particularly interested in a number of catalysts ahead, which we believe will highlight the value in this name.
Highly valued stocks in technology, software and leisure were the largest contributors on the short side. While some of these companies are great concepts and benefited beyond expectations in 2020, most remain unprofitable and overvalued heading into a rising rate environment.
Our biggest detractor was in the West Australian based internet service provider Pentanet which was down 13% in December. There was no fundamental news to explain this weakness. We continue to be attracted to the company and remain a holder.
We remain cautiously optimistic heading into 2022, which likely sees a full global recovery and the end of the pandemic resulting in a return to normal market conditions. That said, the biggest known headwind is the Fed’s taper and interest rate policy which could easily de-rail markets, particularly if its plan is mis-managed or impacted by an unknown situation. We therefore reduced net exposure which currently stands at 49%. This is down from 64% last month. We believe the risk-return dynamics of the market are skewed to the downside, and we believe it is appropriate to run with a lower net exposure.
We are actively managing the portfolio at present to reflect this view. We prefer stocks with profits over those incurring losses, current cash flows over those offering future cash flows, and the seemingly boring over the over-hyped. Many of the shorts on our radar are Covid lock-down beneficiaries and our view is the lock-down approach is effectively redundant in most major cities so these stocks will suffer further given decreased demand and tough year over year comps.
As always if you would like to learn more about investing in our fund please contact us – firstname.lastname@example.org