By Bill Studebaker, CIO & President, ROBO Global
While September proved to be a volatile month for the global markets, it’s important not to lose sight of the bigger picture. Year to date, the markets have been surprisingly buoyant, especially considering the continuation of a global pandemic. Despite the ongoing crisis, the numbers show continued growth, with the S&P up +5.5% (with dividends), the CCMP up +25.20% (with dividends), and the ACWI up +1.69%. For ROBO Global, the ROBO index is down -0.56% for September and up +14.42% YTD through end of 3Q. The THNQ index is down -4.51% for September and up +35.38% YTD through end of 3Q.
Like many, I am struggling to decipher whether investors are pricing in the new reality or simply being delusional. On one side of the debate is the view that, even in the face of the pandemic, fundamentals are so strong that an additional CARES Act may not be needed at all. The contrary perspective: underneath the surface, things are not nearly as rosy as they may seem. I suppose what matters most isn’t who is “right,” but where we go from here.
Nobody really knows what our world will look like a year from now. While I am optimistic of the path ahead, it is becoming increasingly clear that returning to normal will be defined by our “new normal”—which is likely to look markedly different from the one we remember. That is true for everything from classrooms to workplaces to the stock market. By definition, having the global markets return to “normal” means returning to a reasonably predictable cyclical rotation. In my view, getting there requires seven basic developments:
- Interest rates move higher
- The spread of COVID slows
- A trusted vaccine is available
- Cyclicals and value stocks show signs of growth
- A path to normalization is clear
- FOMO of technology relinquishes
- Toleration of stretched valuations simmers
Yet this list doesn’t cover every variable. The biggest elephant in the room is, of course, the US Election—which is now less than a month away. Until the votes are in and counted and a potential transfer of power is under way, investors are likely to remain skittish and even more unpredictable than usual.
So with such uncertainty, what is the wisest path forward for investors? Because valuations come down faster than EPS estimates can rise, we think the greatest opportunity lies in careful, research-based selection of specific stocks, rather than in relying on broad market index exposure. We continue to favor stocks that offer operating leverage stories and GARP (growth at reasonable prices), many of which are included in the ROBO Global indices.
As we inch closer to an end to the pandemic, it is important to recognize the role of technology in enabling our post-COVID world. Indeed, if there has been one silver lining of the crisis, it is that the momentum of the technology revolution has been accelerated. Seemingly overnight, organizations around the globe have recognized the urgent need for data and digitalization that enables them to gain insights, improve business outcomes, and drive productivity. That enlightenment has placed us firmly in the early innings of a technology-driven, decades-long investment cycle centered on delivering these new imperatives. For investors seeking to benefit from this cycle, the ROBO Global indices offers the deep research, constant vigilance, and targeted exposure to make the most of what lies ahead.