By Barry Randall
As I type this in mid-April the stock market seems to be in a free fall. This is something of an optical illusion, because as of April 14, the S&P 500 index (SPX) was down, year-to-date, less than 1%.
I think the feeling that we are in the midst of some sea change comes from two factors. One: the traditional "Sell in May, Go Away" weakness that statistically occurs every Spring. And two: the significant pullbacks in some of the more famous (or infamous) technology companies that garner most of the headlines these days.
Like Facebook (FB), down more than 18% from its 2014 high of $72 on March 10. Or Twitter (TWTR), down more than 40% from its 2014 high of $69 on January 3. How about electric car maker Tesla (TSLA), off 22% since peaking on March 4?
But even these high-fliers are now going down past price points they went up past earlier this year. Or late last year. That is, they really haven't gone down much at all–at least yet.
All that's happened is that the price momentum that carried them to all-time-highs (and stratospheric valuations) has now reversed. To the detriment of their shareholders. But not us: we've never owned them.
At Crabtree, we place a lot of emphasis on controlling volatility in the portfolio. And since we traffic in technology stocks, that's not always easy.
But you can look for yourself on our Covestor page: the Maximum Drawdown for our portfolio since our inception is 7.5%, which is better than the 7.9% level recorded by our Covestor benchmark, the Russell 2000 Index (RUT). And not far away from the 5.7% level recorded by the S&P 500 during that period. How has that played out in the Crabtree Technology portfolio? As of April 14, the portfolio is down only 7.1% from its recent peak on March 4.
So the market has pulled back from its February highs and has pulled tech back with it. Now what should you do? Answer: nothing, really. That's because, as I noted in a column earlier this year, innovation hasn't stopped happening.
And there are dozens of technology trends that will improve our lives and increase our wealth; none of this will stop happening because the stock market is moving in a particular direction.
The stocks in the Crabtree Technology portfolio are kind of like my kids: I'll tell you I love them all equally and that is manifested in the fact that I keep them all at around 2% of the portfolio. I'm not really favoring any of them.
But, as with our kids, I secretly have my favorites. And here are the five stocks in the portfolio that I think are riding large secular trends and will flourish for many years, even if 2014 turns out to be one of those "meh" years of market performance.
· AudioCodes (AUDC) (voice-over-IP);
· EnerNOC (ENOC) (the 'smart' energy grid);
· Euronet Worldwide (EEFT) (mobile payments);
· Hexcel (HXL) (carbon fiber composites);
· inConact (SAAS) (software-as-a-service)
In our opinion, March was a solid month for the Crabtree Technology portfolio and exemplifies our goal of reducing volatility in a choppy market.
The Crabtree Technology portfolio declined -0.2% in the month, compared with a -0.8% loss for our Russell 2000 (RUT) benchmark and a 0.7% gain for the S&P 500 (SPX). Our internal benchmark, the Merrill Lynch Technology 100 (MLO) declined -1.6% in March.
The most widely held technology ETF, the State Street Global Advisors' Technology Select SPDR (XLK) was unchanged during March.
DISCLAIMER: The investments discussed are held in client accounts as of March 31, 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable. Past performance is no guarantee of future results.
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