Edition #38 - 7.1.2021
Mid-Year Review of My 2021 Investment Themes & Top Picks
On January 4, 2021, I released my first analytical paper as an independent market analyst. This paper played two key functions: to act as a supporting document for my bullish views on U.S. equities (and U.S. assets in general), and to highlight my top investment themes & individual stock picks for the calendar year.
The purpose of this update is not to review the reasons why I remain bullish on U.S. equities & asset prices, as the fundamental views I have in regard to monetary policy and saturated liquidity still ring true today, despite some perceived pressure due to potential inflationary concerns. While I acknowledge that these inflationary concerns are real, the Federal Reserve has confirmed their steadfast approach to providing liquidity, their balance sheet has continued to rise to historic levels month after month, and the economy still has a substantial road to recovery. All of these topics have been covered at length here on this very newsletter.
As such, I’d prefer to use this mid-year update as a micro rather than macro discussion, in which we specifically review the individual investment themes & stocks that I highlighted at the start of the year. Where are they today, and what road have they taken to get here? Have these investment themes under or outperformed the broader market & how do they compare to the major equity indexes? How did the equity tantrum to rising yields in mid-February impact the portfolio? Let’s dive in.
Mobile Payments & E-Commerce: Equal-weight portfolio allocation YTD performance is +11.81% with a success rate of 6/9 or 66.7%.
Data Analytics & Cloud SaaS: Equal-weight portfolio allocation YTD performance is +3.71% with a success rate of 8/11 or 66.7%.
Internet Transfer & Innovation: Equal-weight portfolio allocation YTD performance is +2.5% with a success rate of 4/9 or 44.4%.
Semiconductors: Equal-weight portfolio allocation YTD performance is +20.44% with a success rate of 7/7 or 100%.
Clean Energy & Renewables: Equal-weight portfolio allocation YTD performance is +7.65% with a success rate of 6/7 or 85.7%.
Consumer Technology & Discretionary Spending: Equal-weight portfolio allocation YTD performance is +6.12% with a success rate of 6/11 or 54.5%.
Total Portfolio Performance w/ Equal-Weight Allocation to 54 Stocks: +8.03%
Unfortunately, this portfolio of top picks is currently underperforming each of the major U.S. equity indexes by a fairly substantial margin. As of 6/30/2021, the Dow Jones is +12.73%, S&P 500 is +14.41%, Nasdaq-100 is +12.93%, and the Russell 2000 is +17.03%. It’s definitely disappointing to see such clear underperformance, but we’re only half-way through the year & there’s a lot of ground to potentially make up.
It’s important to consider that the entire precedent for choosing these investment themes & the individual stocks was my assumption that rates would remain at/near historic lows. The presence of low yields would benefit companies with high revenue growth, limited profitability, and a reliance on their future earnings potential. While the federal funds rate, interest on excess reserves, and overnight reverse repo rates remain at historic lows, nominal yields on U.S. Treasuries & agency MBS experienced rapid gains in the beginning of the year. Initially, the market didn’t seem to believe that these yields would continue to rise, and growth-related equities continued to chug along, but rates continued to climb higher! The market then had a tantrum & sharp sell-off in mid-February in response to the concerns of a sustained increase in yields, inflationary pressures, and higher expectations of economic growth! As such, the majority of the individual stocks in my list of top picks got crushed by a substantial margin during that period, due to their sensitivity to yields as growth-oriented stocks. Even at the present moment, many are still 30% to 50% lower than their YTD highs.
If we consider how this portfolio of top picks performed as of 2/15/2021 (the general tech/growth peak before the yield tantrum), the return is absolutely astounding & illustrates just how strong this portfolio can move under a low-yield environment. If we measure the YTD return for the period ending 2/15/2021, an equal-weight portfolio of these 54 stocks would have gained +36.93%. During that period, only 4/54 stocks were negative for an average loss of -4.84%. Additionally, a separate 4/54 stocks had achieved more than a +100% gain in the first 1.5 months of the year. If we calculate the individual difference between the YTD gain/loss as of 2/15/2021 vs. the YTD gain/loss as of 6/30/2021, we’d get an average spread of -28.9%, which helps to illustrate just how difficult the market conditions have been for individual growth stocks since mid-February 2021.
As I’ve been covering in this newsletter, the recent decline in yields based on the Federal Reserve’s strength at the helm has reaffirmed my optimism on tech/growth stocks for the time being. If these yields continue to decline, even at a moderate & steady pace, I fully suspect for this portfolio to pick up its slack relative to the market.
To close out the mid-year review, here are each of the investment themes & the individual stock picks in each category:
Mobile Payments & E-Commerce:
Sea Ltd. (SE): Total YTD +37.96%. YTD peak +49%. YTD low -4%.
Shopify Inc. (SHOP): Total YTD +29.07%. YTD peak +37%. YTD low -11%.
PayPal (PYPL): Total YTD +24.46%. YTD peak +32%. YTD low -4%.
Fiverr International (FVRR): Total YTD +24.29%. YTD peak +72%. YTD low -21%.
Etsy Inc. (ETSY): Total YTD +15.7%. YTD peak +41%. YTD low -13%.
Square Inc. (SQ): Total YTD +12.02%. YTD peak +30%. YTD low -12%.
PagSeguro Digital (PAGS): Total YTD -1.69%. YTD peak +10%. YTD low -33%.
MercadoLibre Inc. (MELI): Total YTD -7.01%. YTD peak +20%. YTD low -24%.
Pinduoduo Inc. (PDD): Total YTD -28.51%. YTD peak +19%. YTD low -36%.
Data Analytics & Cloud SaaS:
Adobe Inc. (ADBE): Total YTD +17.1%. YTD peak +18%. YTD low -15%.
Twilio Inc. (TWLO): Total YTD +16.44%. YTD peak +35%. YTD low -18%.
Veeva Systems (VEEV): Total YTD +14.21%. YTD peak +19%. YTD low -13%.
Cloudera Inc. (CLDR): Total YTD +14.02%. YTD peak +39%. YTD low -19%.
Palantir Technologies (PLTR): Total YTD +11.93%. YTD peak +91%. YTD low -27%.
Datadog Inc. (DDOG): Total YTD +5.73%. YTD peak +21%. YTD low -29%.
Five9 Inc. (FIVN): Total YTD +5.15%. YTD peak +15%. YTD low -14%.
MongoDB Inc. (MDB): Total YTD +0.69%. YTD peak +19%. YTD low -33%.
ServiceNow Inc. (NOW): Total YTD -0.16%. YTD peak +8%. YTD low -18%.
Cognizant Technology (CTSH): Total YTD -14.93%. YTD peak +0.76%. YTD low -16%.
Alteryx Inc. (AYX): Total YTD -29.37%. YTD peak +15%. YTD low -39%.
Internet Transfer & Innovation:
Snap Inc (SNAP): Total YTD +36.09%. YTD peak +46%. YTD low -4%.
eXp World Holdings (EXPI): Total YTD +22.85%. YTD peak +184%. YTD low -29%.
Pinterest Inc. (PINS): Total YTD +19.8%. YTD peak +36%. YTD low -17%.
Match Group Inc. (MTCH): Total YTD +6.65%. YTD peak +15%. YTD low -14%.
Zillow Group Inc. (Z): Total YTD -5.84%. YTD peak +60%. YTD low -20%.
Chegg Inc (CHGG): Total YTD -7.99%. YTD peak +27%. YTD low -20%.
Lemonade Inc. (LMND): Total YTD -10.69%. YTD peak +53%. YTD low -51%.
MarketAxess Holdings (MKTX): Total YTD -18.53%. YTD peak +3%. YTD low -18%.
Purple Innovation Inc. (PRPL): Total YTD -19.82%. YTD peak +24%. YTD low -27%.
Semiconductors:
NVIDIA Corporation (NVDA): Total YTD +53.31%. YTD peak +54%. YTD low -11%.
Lam Research Corporation (LRCX): Total YTD +38.39%. YTD peak +42%. YTD low 0%.
Ambarella Inc. (AMBA): Total YTD +16.13%. YTD peak +49%. YTD low -9%.
SiTime Corp. (SITM): Total YTD +13.1%. YTD peak +35%. YTD low -32%.
Taiwan Semiconductor (TSM): Total YTD +10.86%. YTD peak +30%. YTD low -1%.
Broadcom Inc. (AVGO): Total YTD +10.62%. YTD peak +13%. YTD low -4%.
Cadence Design Systems Inc. (CDNS): Total YTD +0.69%. YTD peak +9%. YTD low -13%.
Clean Energy & Renewables:
Ameresco Inc (AMRC): Total YTD +20.06%. YTD peak +34%. YTD low -27%.
Waste Connections Inc. (WCN): Total YTD +16.87%. YTD peak +21%. YTD low -5%.
SunPower Corporation (SPWR): Total YTD +13.96%. YTD peak +124%. YTD low -23%.
Enphase Energy Inc. (ENPH): Total YTD +4.65%. YTD peak +30%. YTD low -38%.
American Water Works Company Inc. (AWK): Total YTD +1.17%. YTD peak +8%. YTD low -14%.
Plug Power Inc. (PLUG): Total YTD +0.83%. YTD peak +122%. YTD low -45%.
NextEra Energy Inc. (NEE): Total YTD -4.01%. YTD peak +13%. YTD low -11%.
Consumer Technology & Discretionary Spending:
Roku Inc. (ROKU): Total YTD +38.32%. YTD peak +46%. YTD low -17%.
Logitech (LOGI): Total YTD +24.42%. YTD peak +44%. YTD low -6%.
Garmin Ltd. (GRMN): Total YTD +22.02%. YTD peak +22%. YTD low -5%.
Tencent Holdings ADR (TCEHY): Total YTD +4.99%. YTD peak +38%. YTD low -0%.
Lululemon Athletica Inc. (LULU): Total YTD +4.87%. YTD peak +7%. YTD low -22%.
Apple (AAPL): Total YTD +3.55%. YTD peak +9%. YTD low -12%.
Netflix Inc. (NFLX): Total YTD -2.32%. YTD peak +9%. YTD low -11%.
Walt Disney Co. (DIS): Total YTD -2.99%. YTD peak +12%. YTD low -11%.
Sony Corp. (SNE): Total YTD -3.65%. YTD peak +17%. YTD low -9%.
Tesla Inc. (TSLA): Total YTD -3.68%. YTD peak +27%. YTD low -23%.
Peloton Interactive (PTON): Total YTD -18.26%. YTD peak +12%. YTD low -48%.
As a finishing thought, I reiterate my positive outlook for each these investment themes and truly believe that they offer strong risk/reward opportunities. While many of the names are beaten down off their YTD peaks, I remain broadly optimistic on these stocks, although some have certainly lost their luster and I have strong doubts that they’ll recover back to their YTD peaks during 2021. With that said, I’m not going to change or modify any of the picks & will continue to stick with this group as we go into the second half of the year. It’s important to note that the major U.S. equity indexes are already outperforming their historical averages by a substantial margin, although that is no guarantee that they will be able to sustain those gains for the remainder of the year.
To get a better idea of what I’m invested in at the present moment, including my weekly top 10 portfolio allocations and watch lists, be sure to subscribe as a premium member on the monthly or yearly plan.
Until tomorrow,
Caleb Franzen
DISCLAIMER:
My investment thesis, risk appetite, and time frames are strictly my own and are significantly different than that of my readership. As such, the investments & stocks covered in this publication are not to be considered investment advice and should be regarded as information only. I encourage everyone to conduct their own due diligence, understand the risks associated with any stock that is reviewed, and to recognize that my investment approach is not necessarily suitable for your specific portfolio & investing needs. Please consult a registered & licensed financial advisor for any topics related to your portfolio, exercise strong risk controls, and understand that I have no responsibility for any gains or losses incurred in your portfolio.