Kim Bolton's Top Picks
Kim Bolton, president and portfolio manager of Black Swan Dexteritas
FOCUS: Technology stocks
In October, global financial markets declined as volatility surged on a spike in both geopolitical and interest rate risk, with equities and bonds exhibiting the same dangerous correlated declines as the prior month.
Stock markets have recovered in November, approaching their July peaks. This rally has been a three-part move primarily due to a market in a net short gamma position, systematic flows, and volatility selling. These are primarily a function of flows and positioning and have nothing to do with the improvement in the fundamental outlook for the economy or earnings growth. This is important because “mechanical” flows are subject to swift and sudden shifts.
Those sudden shifts could start this flow in the last week of November, with the U.S. Treasury auctions back, U.S. Federal Reserve Chairman Jerome Powell speaking ahead of a Federal Open Market Committee blackout period. Additionally, credit spreads are approaching a key level, which could start the unwind of the November rally and a push lower in the broad equity indices over the coming weeks.
So far this November, the S&P 500 Index and Nasdaq Composite are both higher by more than eight per cent. If interest rates do turn higher and financial conditions begin to tighten, then it wouldn’t take much of a move in the stock markets to shift back into negative gamma. This would trigger the systematic flows to flip back from buyers to sellers, raise implied volatility and widen credit spreads to unwind some of the rally off the October 2023 lows.
Your BSD Global Tech Hedge Fund has been positioned for this August-October 2023 stock market pullback, with an average 88 per cent short equity indices hedge on the notional value of the invested stock portfolio. The BSD Team recognized the November short covering rally in the options market and lowered our short equity hedge to less than 30 per cent of the invested stock portfolio. The hedging overlay will always be an important tool to protect your capital in bearish markets, and also an important tool to be dialled down in bullish markets.
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Alteryx is a SaaS used for data science and analytics, the software is designed to make advanced analytics accessible to any data worker.
Alteryx has been beaten down and much of this appears to be an overreaction to lowered guidance following what has been a significant run-up. This pullback opens up a valuable buying opportunity as the stock appears to have levelled out and potentially found a near bottom in the most recent week. For the first time in years, there is value in this growth stock and this opportunity has opened up as much as 60 per cent potential upside with as little as five per cent downside as long as the sector as a whole stays strong in a few crucial upcoming quarters.
Its closest peer is Palantir, but Alteryx is more exposed to the business cycle than Palantir due to its lack of government contracts. Alteryx’s value proposition is aligned with future growth, which is why it suffered during the pandemic where companies were focused on adapting to the current environment.
Accenture is an IT consulting and outsourcing powerhouse with client companies across just about every sector imaginable. With the ongoing transition to the cloud, management has been focusing on cloud integration with partnerships with Microsoft, Oracle, Amazon, Alibaba, Google and many others.
The company’s client base includes more than 75 per cent of the Fortune Global 500, and 97 of the top 100 clients have been partnered with it for over 10 years. The technical side of Accenture’s business is obviously important; however, the real strength is built on its client relationships and being the go-to solutions provider.
Samsung Electronics Co. (SMSN LSE)
One of the global leaders in the technology space, as its reach extends into the following business segments: consumer electronics, appliances, network systems, medical devices and semiconductors/LEDs.
It has found growth in the semiconductor market by doubling down on its foundry business. It provides custom chips for major customers such as Qualcomm, Tesla, Intel, and Sony, as well as numerous smaller players.
It invested $17 billion in a new chip fabrication plant in Taylor, Texas, promising the first U.S. production of advanced chips in the near future.
PAST PICKS December 21, 2022
Nintendo Co., Ltd. (NTDOY ADR)
- Then: US$10.44
- Now: US$11.55
- Return: 11%
- Total Return: 13%
ASML Holding (ASML NASD)
- Then: US$580.96
- Now: US$687.41
- Return: 18%
- Total Return: 19%
PayPal Holdings (PYPL NASD)
- Then: US$69.21
- Now: US$59.00
- Return: -15%
- Total Return: -15%
Total Return Average: 6%