Tech: Why this strategist has an Underweight rating on Mag 7
00:00 Speaker A You're underweight the Mag 7. Um, how come? What what are the key risks there? Is that is that earnings growth, Adam? Is that valuation? What do you see? 00:09 Adam Yeah, it's it's it's both certainly. And we've been underweight uh for several months now. and we've been telling our clients, look, you can express a uh your your belief or or optimism around the AI trade, it doesn't mean you have to own the index weight. And I think that's really important that we could be deliberate in our positioning. We're not uh we we don't have a a mutual fund where we have to really focus too much on tracking here. I think it's important to pick and choose your spots. And so as we focus on the Magnificent 7, we're looking at a group where we've seen operating margins expand by double digits, by about 10% over the next over the last three years. You have to ask yourself how much further that can go as we start to see uh the people start to question all the investment going into this and we see new competition. We see these these companies starting to leap frog each other. And so that's one of the reasons that we're just focused away from it. We think that they are still profitable, they're still printing cash, but we also want to focus beyond the Mag 7 and we think that that's where the opportunity lies. 01:17 Speaker A You also say you're Adam, you're preparing your clients for more volatility ahead. How how how do you prepare them? I mean, how do you how do you keep them sort of just focused and disciplined even if we see drawdowns? 01:34 Adam Yeah, it's uh, we really try hard. I I think it's really important first to just state the facts. We're coming off three very good years for risk assets focusing on the S&P 500, cumulative returns of close to 80%, back-to-back-to-back years of 15% plus returns. And so I think just stating the facts and and the current landscape, we can all acknowledge the geopolitical risks, but let's also just look at the calendar here. It's a mid-term election year. Historically, those are more volatile. You see average entry year drawdowns of close to 19% versus 12% in years one, three and four. So right there, there's likely to be more volatility here. and I think it's just really about hammering it and focusing on that long-term financial plan which we do for all of our clients and saying, look, your portfolio, your financial plan is built to withstand short-term periods of volatility. If we do see a little bit of a stumble, that's okay, it's healthy. And as long as our economic outlook remains favorable and earnings continue to deliver, we think that any sell-off will be relatively short-lived.
Comments (0)