Bitcoin Vigilantes

Market Recap

Anticipating strong economic and earnings gains in 2021 after the COVID inspired recession in 2020, broad stock indices continued their hefty rally in 2020’s fourth quarter. I believe resolved political, economic, tax and virus uncertainties inspired investors to the riskier, cyclical and ignored parts of the market like small-caps (Russell 2000 up 31%) and value (Russell Large Value 16.2%).

From the March 23rd, 2020 lows to January 8th, the S&P 500 and NASDAQ are up 70.9% and 92.4%, respectively, reaching record highs. Historically, increased visibility/less uncertainty has provided fuel to markets as it is easier to make business decisions and model cash flows.

To this end, moderate Democrat Joe Biden has begun his peaceful transition to the White House and will lead a unified Democratic Congress, likely leading to additional fiscal stimulus, a greater push towards green infrastructure/energy, and potentially higher taxes.

Moderna and Pfizer COVID-19 vaccines (both with over 90% efficacy per Phase 3 results) began administration in December and bode well for a return to normalcy. Finally, monetary policy also appears clear as Fed Chairman Powell has offered no indication of reversing the current stimulative approach to fulfill the Fed’s full employment mandate. Taken together, vaccine administration, increased mobility, strong economic fundamentals, earnings, employment gains and stimulative fiscal and monetary policy should provide a solid foundation for equity investors.

Fourth Quarter Performance Highlights

  • The Navigator® International Equity/ADR strategy delivered annualized gains of 6.86% gross (3.71% net) vs. the gains of 4.88% for the MSCI All Country World ex-USA Index over three years ending December 30, 2020.
  • For the fourth quarter of 2020, the strategy had a gain of 16.45% gross (15.62% net) versus the 17.01% gain in the MSCI All Country World ex-USA Index.
  • For the 10 years ending September 2020, International Equity/ADR is in the top 3% of Morningstar peer group managers in the Foreign Large Blend category.
  • Our positioning in Information Technology and Communication Services helped relative performance while positioning in Energy and Materials acted as a drag.
  • Our holdings in Tokyo Electron and Baidu helped performance in the quarter as positions in SAP SE and AngloGold Ashanti dampened performance.
  • From a country perspective, the portfolio benefited from strong performance in our positions in Japan and Switzerland while performance in South Korea and the Netherlands lagged.

Positioning and Outlook

Big punchbowls often attract irresponsible behavior. Improving economic expectations have increased the slope of the U.S. Treasury yield, lifting the 10-year Treasury from its record low of 0.51% in August to 1.13% by early January. This yield advance nearly mirrors the outperformance of cyclical and financial stocks versus the previously dominating large-cap companies as part of the latter’s previous gains can be attributed to their high duration characteristics.

Blockchain tool Bitcoin has also exploded from $4,904 to $40,858 since global monetary authorities have expanded their balance sheets and driven real rates negative thus reducing the relative cost of owning zero cash-flow assets.

Just as bond vigilantes protested monetary or fiscal policy, which was considered inflationary by selling bonds thus driving up interest rates, my (newly coined) “Bitcoin Vigilantes” are driving down the dollar index in protest to an excess of fiat currency issuance around the globe. While stimulative fiscal and monetary policy have historically been effective counter-cyclical tools during periods of excess capacity/recession, I have a longer-term fear that a unified Congress and a Fed which has indicated a willingness to allow the economy to “run hot,” may ultimately drive asset prices to bubble levels.

International Equity/ADR Top Contributors as of December 31, 2020

Company Name Average Weight (%) Contribution to Return (%)
Tokyo Electron Ltd. Unsponsored ADR 3.15 1.21
Baidu, Inc. Sponsored ADR Class A 0.88 1.13
Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR 3.51 1.13

International Equity/ADR Top Detractors as of December 31, 2020

Company Name Average Weight (%) Contribution to Return (%)
SAP SE Sponsored ADR 0.41 -0.44
AngloGold Ashanti Limited Sponsored ADR 1.05 -0.34
China Mobile Limited Sponsored ADR 1.17 -0.12

The views expressed are those of the author(s) and do not necessarily reflect the views of Clark Capital Management Group. The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. There is no guarantee of the future performance of any Clark Capital investments portfolio. Material presented has been derived from sources considered to be reliable, but the accuracy and completeness cannot be guaranteed. Nothing herein should be construed as a solicitation, recommendation or an offer to buy, sell or hold any securities, other investments or to adopt any investment strategy or strategies. For educational use only. This information is not intended to serve as investment advice. This material is not intended to be relied upon as a forecast or research. The investment or strategy discussed may not be suitable for all investors. Investors must make their own decisions based on their specific investment objectives and financial circumstances. Past performance does not guarantee future results.
This document may contain certain information that constitutes forward-looking statements which can be identified by the use of forward-looking terminology such as “may,” “expect,” “will,” “hope,” “forecast,” “intend,” “target,” “believe,” and/or comparable terminology (or the negative thereof). Forward looking statements cannot be guaranteed. No assurance, representation, or warranty is made by any person that any of Clark Capital’s assumptions, expectations, objectives, and/or goals will be achieved. Nothing contained in this document may be relied upon as a guarantee, promise, assurance, or representation as to the future.
Foreign securities are more volatile, harder to price and less liquid than U.S. securities. They are subject to different accounting and regulatory standards and political and economic risks. These risks are enhanced in emerging market countries
The S&P 500 measures the performance of the 500 leading companies in leading industries of the U.S. economy, capturing 75% of U.S. equities.
The NASDAQ Composite is a stock market index of the common stocks and similar securities listed on the Nasdaq stock market.
The MSCI All Country World is a market capitalization weighted index designed to provide a broad measure of equity-market performance throughout the world.
The volatility (beta) of a client’s portfolio may be greater or less than its respective benchmark. It is not possible to invest in these indices.
Index returns include the reinvestment of income and dividends. The returns for these unmanaged indexes do not include any transaction costs, management fees or other costs. It is not possible to make an investment directly in any index.
The Russell 2000 Index measures the performance of the 2000 smallest U.S. companies based on total market capitalization in the Russell 3000, which represents approximately 11% of Russell 3000 total market capitalization.
The Russell Large Cap Value Index is a subset of the broader Russell 1000 Index that seeks investment results (before fees and expenses) that correspond to the total return (which includes capital appreciation and income) of the Russell Top 200® Value Index.
Clark Capital Management Group, Inc. reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. The information provided in this report should not be considered a recommendation to purchase or sell any particular security, sector or industry. There is no assurance that any securities, sectors or industries discussed herein will be included in an account’s portfolio. Asset allocation will vary and the samples shown may not represent an account’s entire portfolio and in the aggregate may represent only a small percentage of an account’s portfolio holdings. It should not be assumed that any of the securities transactions, holdings or sectors discussed were or will prove to be profitable, or that the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance of the securities discussed herein.
Clark Capital Management Group, Inc. is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about Clark Capital’s advisory services and fees can be found in its Form ADV which is available upon request. CCM-508