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Majedie: US Equity Update

In a year of soaring asset prices, benign volatility and in-it-to-win-it central banks, the year-end – as ever – offers a juncture to pause. Stop. Reflect. And slip a mince pie or two into the pocket. There has been no stopping stocks, up a blistering 20% plus, with new highs recorded month after month. The crypto love-in speaks of a new generation of investors, a turn in the narrative to one where losses are for others. The old. All the while NFTs abound. Latterly, real estate in the metaverse appears to have become the latest must-have ‘asset’.

That said, there is a brewing sense of unease. Unease in the face of potentially a sharp, inflationary forced pivot of central bank policy as evidence stacks up and up, that the forces uncorked by the Covid pandemic are far less transitory than expected. If at all. Economists bristle as to whether policy can indeed move much, but with mega-distortions found across asset prices and inequality at unsustainable levels, something is likely to give. It has to give.

After such a relentless march, the S&P is left perched on a near record valuation, but strip back the bark and there are signs all is not well, a discolouring, a sense that the market is fragile. Vulnerable. The gains are dominated by the few. The majority are in trouble. Even in mega-cap, selection matters. In a near frenzy of retail driven, option flared buying, these distortions currently present a backdrop where active management can thrive. Be nimble. Mind the valuation gap. And buy companies that offer fundamentals that will ride the hand off in growth to services and react with indifference to a central bank potentially scrambling to play catch up.

For us, this leads us to a carefully put together portfolio that is exposed to idiosyncratic, not economic risk. It is a portfolio full of companies we know bottom-up, inside-out, with powerful catalysts such as underappreciated transformation stories, or hidden business gems. Companies that offer a valuation buffer: companies that are cheap relative to peers, to their growth, or to their own history. We don’t mind where we find them. This leaves us with a portfolio that is differentiated, style and market cap agnostic, and one that on our bottom work offers tantalising upside in the context of a broader market that is increasingly running on air.


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