But there’s a lot of argument that we’re in the midst of a bear market rally with more volatility ahead, especially for fast-growing but not necessarily profitable tech stocks, as they did in previous bull-to-late Excellent 2021.
Robert Stimpson, chief investment officer of Oak Associates Funds, believes a ‘finance-first approach’ to companies with staying power is best in the current environment method, the risks of which include rising interest rates and a possible recession. Stimpson, who has been with the firm for 21 years and co-manages the $544 million Red Oak Technology Select Fund ROGSX, +0.31%, describe his team’s approach to selecting large tech stocks with “attractive valuations, high profit margins, and the ability or willingness to support and recognize shareholder value.” The last part may include share repurchases, which increase earnings per share, increase dividends, or acquisitions that are expected to increase earnings per share. With a low turnover approach, the fund currently holds 26 stocks and has a four-star rating from Morningstar, the second-highest. Stimpson said a company doesn’t necessarily have to pay a dividend to be a holding company for the fund, but “it has to demonstrate respect for investors,” including a “low-profile approach to acquisitions.”
A closer look at the tech rally
Here is a one-year chart showing the Nasdaq Composite Index COMP, +0.62% :
FactSet Nas The Daq is up 23% from its 2022 closing low on June 16 and is down 17% this year. NASDAQ 100 NDX, +0.75% — includes all 100 largest non-financial stocks Nasdaq – also down 17% this year. But even after a 22% gain since June 16, the 23 Nasdaq 100 are still down 30% to 59% in 2022. To be sure, the Red Oak Technology Select Fund hasn’t escaped this year’s slump — it’s already down 17% by 2022. Despite better-than-expected inflation data for July, the Fed is expected to stay the course and continue raising interest rates to cool the economy. Rising interest rates will always put pressure on stock prices — even more so in tech stocks. That’s because their earnings are driven by sales growth, or even an emotional response to their “disruptive innovation” potential, rather than an increase in profits, cash flow and capital allocation to benefit shareholders. “When we’re in a zero-rate environment, there’s a lot more risk acceptance. Capital is cheap, and companies that aren’t expected to be profitable for a while are acceptable,” Stimpson said. Looking ahead, he advises investors to avoid investing in companies that expect them to eventually grow to the valuations that currently appear to be “high.”
FUND PERFORMANCE
Stimpson quickly agrees, Red Oak Technology Select Fund’s ‘high-quality blue-chip approach’ to tech stocks Underperforming during the last bull market. “Do I wish we had Nvidia for the last 20 years? Absolutely — it’s been a monster,” he said. But NVIDIA Corporation NVDA, +1.73% , Tesla Inc. TSLA, +3.10% and Netflix Inc. NFLX, -0.08% , He all called great companies, characterized by “shared equity returns with shareholders” that didn’t meet the fund’s standards. He named Amazon.com Inc. AMZN, -0.26% and Apple Inc . AMZN , -0.26% as an example of a company. This is the total return of the fund compared to Invesco QQQ Trust QQQ, +0.81% (tracks the NASDAQ 100) and SPDR S&P 500 Trust SPY,
+0.41 % Last five years:
Facts
It’s no surprise that the Red Oak Technology Select Fund is lagging the QQQ, when central banks and fiscal policy worked so hard to support the riskiest tech stocks. But the fund has beaten the SPX of the S&P 500, +0.40% five-year performance, and depending on your views on interest rates and the direction of the economy, a conservative technical approach may work for you. Stimpson said the fund has been reducing its consumer electronics-related holdings over the past year as the management team believes “demand for games, homes, etc. has been driven during the pandemic.” He It also said they “reduced their holdings in semiconductors” and increased their stakes in enterprise software companies. Here are the top 10 holdings of the Red Oak Technology Select Fund as of June 30:
company code Fund shares First time purchase
Alphabet Inc. Class C Google, +0.19% 7.9%
March 2014 Apple Inc. AAPL, +0.63% 7.2% March 2006 Amazon.com Inc. Amazon, -0.26% 6.9% March 2016
Microsoft Corporation MSFT, +0.53%
6.0% March 2013 Cisco Systems CSCO, -0.04% 5.5% April 1999 Meta Platforms Inc. Class A Metadata , +0.22 %
4.9% March 2016 KLA Corp. KLAC, +0.82% 4.7% June 2006 Oracle C orp. ORCL,
-0.05% 4.7% September 2013
Synopsys SNPS, +1.30% 4.5% March 2010 Intel Corporation International Trade Commission, +0.64%
4.4% June 2010 Source: Morningstar
The percentage of shares in Alphabet Inc. in the table above is the fund’s combined holding of the company’s Class C GOOG, +0.19% and Class A GOOGL, +0.33% shares. do not miss it: Oil prices fall, but earnings forecasts for energy companies keep rising – these stocks are cheap Best Money at MarketWatch for September 21 Hear Ray Dalio speak at New Ideas Festival and 22 in New York. The hedge fund pioneer has strong views on where the economy is headed. read more
