A few of you have sent us questions you hope to have answered on our new blog. And even more of you have asked for our opinions on individual stocks. Unfortunately, we can’t use the forum to discuss individual stocks as it would become a compliance nightmare. We do, however, welcome your questions related to the markets, the economy, and various sectors. If there is enough interest, we will try to dedicate at least one day a week to addressing your questions and comments.
Onto the first question. Dr. Smith (name made up) from North Carolina (location real) asks us, “What do you think of the technology and financial services sectors these days?”
The quick response to that is we’re overweight in technology and underweight in financials. Our overweight in technology is based on our theme of investing in organic growth companies with strong internal innovation efforts. Please see our last update, Go Granola, for more information on the subject.
We’re underweight financials in the short run, simply because we believe there may be many hidden skeletons associated with credit issues in the mortgage market. While we do own four or five names in the sector, they are unique in that they stand to benefit more than most from the industrialization of foreign economies and from their product innovations in the financial markets.
In the more intermediate term, however, financials are now the largest sector in the S&P 500 at more than 20%. It is typically the case that an industry doesn’t remain the leader in the index for a long period of time, especially once a bubble related to that industry pops. Technology, as investors recall, was 35% of the S&P 500 at its 2000 peak and is only about 15% today. While we fully recognize that the mortgage market may only be a smaller part of the financial sector, it (and private equity to a certain extent…witness the hedge fund and private equity fund IPO’s earlier in the summer) likely played an important role in influencing the sector’s rise to prominence in the S&P 500.
Hope this helps. Keep the questions coming! And if you’d like us to elaborate on an answer, please just post a response in the blog for all to see and we’ll carry the conversation from there.
Have a good evening.
(Please keep in mind that we reserve the right to make changes to our industry views at any time without an obligation to update those opinions on this blog, unless asked, and even then, only in our own timing and at our discretion. While we hope our blog will prove to be a useful educational tool for our readers as well as ourselves, our first responsibility is to our clients who have entrusted us with their financial well being.)
Onto the first question. Dr. Smith (name made up) from North Carolina (location real) asks us, “What do you think of the technology and financial services sectors these days?”
The quick response to that is we’re overweight in technology and underweight in financials. Our overweight in technology is based on our theme of investing in organic growth companies with strong internal innovation efforts. Please see our last update, Go Granola, for more information on the subject.
We’re underweight financials in the short run, simply because we believe there may be many hidden skeletons associated with credit issues in the mortgage market. While we do own four or five names in the sector, they are unique in that they stand to benefit more than most from the industrialization of foreign economies and from their product innovations in the financial markets.
In the more intermediate term, however, financials are now the largest sector in the S&P 500 at more than 20%. It is typically the case that an industry doesn’t remain the leader in the index for a long period of time, especially once a bubble related to that industry pops. Technology, as investors recall, was 35% of the S&P 500 at its 2000 peak and is only about 15% today. While we fully recognize that the mortgage market may only be a smaller part of the financial sector, it (and private equity to a certain extent…witness the hedge fund and private equity fund IPO’s earlier in the summer) likely played an important role in influencing the sector’s rise to prominence in the S&P 500.
Hope this helps. Keep the questions coming! And if you’d like us to elaborate on an answer, please just post a response in the blog for all to see and we’ll carry the conversation from there.
Have a good evening.
(Please keep in mind that we reserve the right to make changes to our industry views at any time without an obligation to update those opinions on this blog, unless asked, and even then, only in our own timing and at our discretion. While we hope our blog will prove to be a useful educational tool for our readers as well as ourselves, our first responsibility is to our clients who have entrusted us with their financial well being.)