Page 16 - DIY Investor Magazine | Issue 33
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  And we’ve had a few of these rotations over the last two or three years and especially since Covid, but this one has been particularly severe and the catalyst for it has actually been what you referenced in your previous question: the rate hikes that are happening in the US and the realisation from the market that this is actually going to happen, or at least people are now expecting it to happen.
And that’s caused the valuations of particularly the growth stocks and in particular I’d highlight the very top end of that, what we call spec-tech, or speculative technology. These are some of the real highflyers of 2020 and 2021; in many cases, companies that have very little earnings or no earnings, in some cases don’t even have any revenues, that have gone
to very high valuations, and they’ve just really fallen hard as there’s been a reappraisal of what the right valuation is for that profile a company.
It has also impacted the more established high-growth companies – the Microsofts, the Amazons, the Apples – the big companies that led the market, they’ve come off as well. Again, it’s the same factor driving it, really just a de-rating rather than anything fundamental that’s changed. At the same time, you’ve got some sectors that historically have very much been in the value camp. I can think of banks, banks clearly big beneficiaries of rising interest rates and valuations still are quite low, so they’ve done quite well.
And, of course, the energy sector, which is again also a pretty lowly valued sector, but it’s also benefiting at the moment from higher oil and gas prices and the general inflationary environment.
JL: And how has Brunner fared since we last spoke?
MT: I’d say actually it’s throwing up opportunities. It’s a good environment for us. We’re stock pickers, we like volatile markets; we like it when there are big moves, because it creates opportunities for us.
And we’re already finding opportunities, particularly amongst some of those high-quality, high-growth companies to look at new ideas for the portfolio.
JL: The Brunner annual report was published very recently. What stood out for you in that report?
MT: Well, I think one of the challenging things was obviously writing this over the Christmas period. Clearly 2021 was a very good year for the markets, good year for the Trust, good year for the portfolio, but clearly thinking about the outlook and some of the risks that are on the horizon, and we did talk quite candidly to shareholders about the risks that we foresaw.
One of those risks was what we’ve just been talking about, which was highlighting some of the quite speculative behaviour that had been occurring, particularly in the US market and the way in which that was affecting valuations in certain parts of the market.
Not really so much in the companies that we’re investing in, but that was definitely a major risk factor for investors to consider for the market as a whole.
But then of course we found ourselves having to amend some of what we’d written, because within the first two or three weeks of the year we’d already largely seen a significant chunk of
that risk actually play out, in the sense that many of those real speculative technology companies have really fallen a very, very long way now. So it shows how quickly the market can move and things can change.
JL: Thank you very much, Matthew. Matthew Tillett, the Lead Portfolio Manager with the Brunner Investment Trust. Thank you for joining me. Make sure you’re subscribed to Connected Investor wherever you get your podcasts so you don’t have to go hunting for it next time. And thank you all for listening.
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