Global Quality Low Risk Stocks Portfolio Review
The market has recovered from the brief downturn at the beginning of August. The downturn was triggered by weaker-than-expected employment figures that were released immediately after the Fed's meeting. The Fed kept the key interest rate unchanged, which in hindsight seemed to be a misstep by the market as economic growth slowed. The carry trade on the Japanese yen also played a role in the situation.
The earnings season has also been somewhat disappointing, at least judging by market reactions.
Interest rates have fallen sharply, indicating that the market expect economic growth and inflation to slow and that the central bank will lower rates more quickly than anticipated at the start of the summer.
II-Quality Portfolio Performance
II-Quality portfolio has performed in line with our strategy in 2024. The portfolio has returned 7.7% since the beginning of the year, while the $SPX500 index has returned 12.7%. However, the S&P 500 index is 5.7% below its peaks, while our portfolio is only 1.7% below its highs for the current year. The risk in our portfolio is significantly lower than that of the S&P 500 index, and the portfolio has outperformed the S&P 500 in a volatile market environment.
Top Holdings
The largest holding in II-Quality portfolio is $ORCL (Oracle Corporation) which benefits from the AI megatrend. Oracle has declined along with other tech companies but has yet to release its Q2 results. The second-largest holding is $GRMN (Garmin Ltd.) which has reported its earnings and has performed relatively steadily. The third-largest is $TJX (TJX Companies Inc) whose earnings release is still a week away. The stock has been relatively stable. The fourth-largest is Swedish $ASSA-B.ST (ASSA ABLOY AB ser. B) whose earnings were in line with expectations. The stock has pulled back slightly from its late July peaks. The fifth holding is $LLY (Eli Lilly & Co) the leader in weight-loss drugs. The stock was already in a downtrend, but a significantly better-than-expected earnings report pushed the stock into a clear uptrend.
Market Outlook
We are cautious about market developments due to the unusual volatility at the beginning of August. Typically, such a rapid increase in volatility signals a shift in the broader picture. The risk is that economic growth slows and the Fed keeps interest rates too high for too long. Earnings reports from listed companies have hinted at a cooling cycle and softness in consumer demand.
Our cash position in the portfolio is 4.8%. We do not see a need to change it at this time. We are waiting for a better buying opportunity to put the cash to work. Increasing the cash position does not make much sense either, as the portfolio has performed so well in a volatile market environment.... Show More
