Took the Summer Off...September Returns Don't Care

Did everyone enjoy their summer? I hope so, I sure did. But as with all good things 'Nothing Gold Can Stay'. It's good to be back though and I really enjoyed taking a break from the day-to-day investment research grind, social media food fights, and getting a (much needed) change of scenery.

How about those stock markets? Of course I kept up with that and surprisingly the Meta has not really changed all that much: $IVV flatlined in June and ramped up in July and August. $QQQ did even better and took no days off. However, the tides may be going out if last week was any indication. Strong sell offs like these first few trading days of September are the ones that can shift the momentum and break the trend. Here's the historical perspective behind the sentiment courtesy of Yardeni Research. 

​But as we all know past performance is no guarantee of future returns! So is the Metagame really on the verge of changing? Well, here's a couple charts to consider:

Factor returns 2020 year-to-date

Factor returns September 1st-4th 2020

​From a factor perspective it most definitely seems so. Anecdotally, nearly every institutional portfolio manager I have spoken with recently has mentioned that their firm's research is recommending a rotation to small caps and value. However, when I take a closer look, this guidance seems less like a bold call made with conviction and more of a punt.
The momentum and growth trades have outperformed by SO MUCH comparatively to other factors (especially in the last five years). The timing of this sell off + factor leadership change feels much more like a rebalance caught up in a profit-taking sell off than any other scenario. And I get it, allocators are not willing to stay the course after getting so lucky with a V-shaped market recovery. Just three months ago the financial news networks were still debating if we were in for a V-shaped, U-shaped, L-shaped or my favorite, W-shaped recovery. The prudent move is to punt; take some chips off the table and rebalance your positions to (hopefully) run the clock down for the rest of 2020.

Right now we may be in a head-fake correction. Remember June's selloff? Yeah, just like that one. If you have dry powder (and you should) you should be refining your watchlist because we may have another yo-yo rally that you might miss if you blink.

​So what's the Metagame? I could be wrong but this feels like a stick to your guns moment for long-term investors. Top allocators know two rules very well: 1) let your winners run and I mean really run and 2) be prepared to be wrong before you are right. All those amazing companies you purchased in March deserve to be there and if you are underweight your best ideas, you can make the corrections very soon in the historically worst calendar month of the year, September.


Music bed provided by George Benson - Breezin'