TLDR: If you had to summarize investor positioning in the last 12 months, it’s broadly this: everyone is long tech. And most want to be out of energy and financials. Sure, there are some other companies and sectors out there but really, this is where the big money is going (or leaving). Is there any value in other stocks?
Money flows don’t lie and they have not been good for stocks outside of tech. Who wants to own a retailer stock, or a trucking business, when you can be long AI? There is a reason WeWork claimed to be a tech company (albeit its software had a relatively patchy record).
Morningstar publishes an interesting piece that highlights undervalued stocks (and their own methodology). Not surprisingly, the names on it aren’t going to get anyone’s heart racing: Conagra? Kraft Heinz?
But but but …
Even if you can only find stocks you love in the tech space, it always makes sense to look for “less correlated” trades. And this might be a good time to look at the sectors “in the middle” of the chart above.
For smaller portfolios, benefits of diversification initially are actually enormous (chart below).
Up until you’ve reached about 10-15 stocks, there is enormous gain from additional diversification.
If there are undervalued industrials, or consumer goods stocks, why not take a look?
This section is powered by Open AI connected to TOGGLE AI
The MSCI Emerging Markets Small Cap Index has been performing impressively this year, registering a significant 14.7% increase. This index comprises 1,905 stocks with an average market value of approximately $583 million.
In contrast, its large-cap counterpart has seen a more modest gain of 2.5%, featuring stocks with an average market size of about $7.9 billion. Noteworthy examples of remarkable growth within the small-cap index include Wistron Corp from Taiwan, soaring by an impressive 258%, Ecopro BM from South Korea with a remarkable 200% increase, and India's Jindal Stainless Ltd with a notable 96% uptick.
On the other hand, Chinese large caps like Tencent Holdings, JD.Com, and ICBC have experienced a downturn year-to-date, primarily attributed to the economic challenges faced by China. This disparity in performance can be partly attributed to a geographical bias, with portfolios favoring Taiwan, Korea, and India while reducing exposure to China.
However, it's essential to remain vigilant, as emerging-market small caps often bear the brunt of market sell-offs when risk sentiment takes a negative turn.
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This is a great piece by the WSJ.
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