Rotation, Rotation, Rotation!

news s&p500 Nov 23, 2020

Published by Anthony Di Pizio

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What A Ride

US markets recently made all time highs (S&P500) much to the surprise of many participants. With the sheer scale of the disruption caused by the COVID-19 pandemic, many investors expected to wait years before seeing broad stock market returns again.

They managed to find some positivity among the chaos, though, discovering a plethora of companies which may have actually fared better in the new stay-at-home economy. By now we're all familiar with the incredible stories of Zoom or Peloton, for example.

The list of innovative, or potentially adaptive companies grew so large that CNBC personality Jim Cramer formed the 'Cramer COVID-19 Index' back in April. He managed to put forward ~US$11 trillion worth of companies which could be expected to outperform in this new world. 

Outperform they did. Measured from the market bottom in March to the recent highs, the Cramer index added 86% compared to the benchmark S&P500's 69%. 

Too Late?

Over the last month, particularly after the wave of fantastic COVID vaccine announcements, there has been a notable stall in some of the high flyers. 

Zoom is down 23% from the highs

Peloton is down 19%

Fastly is down 36%

Even Amazon and Apple have struggled, both down roughly 12%

The names that carried major indices higher in the face of global disaster are now weighing them down. The indices themselves have managed to tread water, though.

This is thanks to a distinct, powerful market rotation out of sectors such as technology, and into travel, leisure, financials and REITs - comprising the so called ''epicentre'' stocks. 

Just look at this chart:

INVESCO High Beta ETF (blue)

NASDAQ 100 (black)

S&P500 (red)

The high beta ETF return has beaten both the Nasdaq and the S&P500 by almost 3 times since August, notably taking off in early November following the vaccine news from Pfizer.

Below is the composition of the Invesco ETF:

Financials, consumer discretionary and energy make up 62% of this fund - 3 sectors which have suffered some of the heaviest COVID-related losses in 2020. 

Our Take

ADS Capital clients know that since August, we've been recommending companies in the epicentre category - quality names which remained heavily beaten down with limited immediate signs of recovery. We maintained the view that a vaccine would be delivered by year's end, with wide distribution in the first half of 2021.

For this reason, we targeted large companies with strong balance sheets and enough resources to carry them through the rest of this crisis. Some of the most notable:

Simon Property Group (SPG) 

National Australia Bank (NAB) 

Boeing (BA) 

Woodside Petroleum (WPL)

CitiGroup (C)

The Star Entertainment Group (SGR)

To name a few...

Our clients were buying these on the cusp of enormous runs - only the market didn't know it yet. In a market dominated by technology names, this shows that sometimes making the simple, boring moves can yield the greatest results. 

We expect this trend to continue into 2021 and we're in the process of covering more names set to benefit. 


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