The dominant narrative in markets in recent months continued in August. The view that current inflationary pressures are temporary sets the scene for a becalmed bond market.

In equity land, this translated to continued outperformance by “quality growth” stocks versus the “value” cohort. While this presents a headwind to our selection of cyclical and/or value names, it is within the consumer discretionary sector that we’ve experienced a notable drag. This can be explained by the market’s reaction to the latest variant of COVID-19, as well as much publicised supply side constraints.

Our sense is that expenditure forgone now by many industrial and/or consumer businesses is simply deferred not lost. Therefore, we have chosen to stick with our selections and our strategy.

 

 

Cyclical Expand

Companies that sell discretionary consumer items, such as cars, or industries highly sensitive to changes in the economy, such as miners. The prices of equities and bonds issued by cyclical companies tend to be strongly affected by ups and downs in the overall economy, when compared to non-cyclical companies.

Inflation Expand

The rate at which the prices of goods and services are rising in an economy. The CPI and RPI are two common measures.

Growth stock Expand

A growth stock is any share in a company that is anticipated to grow at a rate significantly above the average growth for the market. These stocks generally do not pay dividends. This is because the issuers of growth stocks are usually companies that want to reinvest any earnings they accrue in order to accelerate growth in the short term. When investors invest in growth stocks, they anticipate that they will earn money through capital gains when they eventually sell their shares in the future.

Value stock Expand

A value stock refers to shares of a company that appears to trade at a lower price relative to its fundamentals, such as dividends, earnings, or sales, making it appealing to value investors.