One of the consequences of the dominance of the mega-cap growth stocks in the US over the last decade or so is that there is a huge amount of concentration risk. Many funds own the same stocks because they use the same investment process, which is to buy growth stocks, no matter where we are in the economic cycle.
The VT Tyndall North American Fund takes a different approach. It looks first at where we are in the business cycle, and then constructs the portfolio accordingly. There are times when growth as an investment style does not work – 2022, for example – and it is important to avoid periods of major stock market declines in order to bolster long-term returns: the Nasdaq slumped by 33.1% last year.
The fund seeks to differentiate in terms of the stocks we hold as well. We sold our last mega-cap tech stock in late 2020, and since then we have avoided Facebook (now Meta), Amazon, Netflix, Microsoft, Apple, Google (now Alphabet), and Tesla.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
This positioning has been undertaken for fundamental reasons, partly because I think the best days are behind these stocks, but also because history shows us that when a group of stocks comes to dominate a market, their dominance does not last forever. Stocks move in cycles, just like the economy, and an era of outperformance always ends. Think back to the hero stocks of bygone decades: Cisco, IBM, GE, and Intel have been massive underperformers since their time in the sun ended.
Formula One roars ahead in America
In looking for stocks that are not widely owned by other funds and that have great long-term potential, I’ve picked out three stocks. The first is Liberty Media Corp. Series C Liberty Formula One (Nasdaq: FWONK), which owns the Formula 1 franchise. This stock gives investors exposure to one of the fastest-growing sports in the world. The Netflix documentary Formula 1: Drive to Survive has dramatically increased the sport’s popularity in America and made household names of the teams, drivers and owners. There are already two Grands Prix in the United States, Austin and Miami, and this year they are adding a third race in Las Vegas, which promises to be a global spectacle.
MGM Resorts International (NYSE: MGM) is a hotel and casino company. After a tough couple of years post-Covid, it’s now seeing its core market of Las Vegas getting much stronger. Weekend visitation has long since recovered, but the big change now is that the convention business is returning. This helps fill rooms during the week and boost revenue per available room. The F1 race in November will be a major event for MGM with its exposure to The Strip, the four-mile street with the most hotels and casinos, and I expect it to be a significant driver of revenue and earnings in 2023.
Cleaning up the competition
Clean Harbors (NYSE: CLH) specialises in hazardous waste disposal and environmental services. It operates in a highly regulated sector, which to a large degree protects it from new competition. Scale and reputation are prized in this sector, as no client wants to have to do the job twice, and this is where Clean Harbors has a clear advantage as the leader in its field. New environmental regulations are a key long-term theme in this sector as they are catalysts for growth, and this stock is a core holding.
More from MoneyWeek:
- Bank bailouts are bullish for bitcoin and gold
- Five changes to state pensions coming next month
- What is happening to house prices?
- Best easy access savings accounts – March 2023
-
8 of the best lakeside properties for saleThe best lakeside properties – from a house on the southeastern shore of Loch Lomond, to a 15th-century hall overlooking a lake in King’s Lynn, Norfolk
-
Gold’s allure and why you should never 'pay a premium for graded coins'It is easy to become distracted by the beauty of gold, but remember why you buy it, says Dominic Frisby
-
Where to invest in the metals that will engineer the energy transitionA professional investor tells us where he’d put his money. This week: John Ciampaglia, manager of the Sprott Energy Transition Materials UCITS ETF.
-
Three British stocks offering all-weather incomeTips A professional investor tells us where he’d put his money. This week: Brendan Gulston, co-manager of the LF Gresham House UK Multi Cap Income Fund.
-
Incredible India: the world’s biggest democracy is set for decades of growthOpinion A professional investor tells us where he would put his money. This week: Gaurav Narain, manager of the India Capital Growth Fund, selects three favourites.
-
5 travel stocks to buy ahead of the busy summer holiday periodTips It may be getting more expensive to go on holiday but you can at least try to make some money back by investing in the travel sector
-
The best performing stocks over five years ‒ and what they could have made youAnalysis If you backed the right stock, then a £1,000 stake could have turned into £45,000 over the last five years
-
3 VCTs to consider as we near the end of the tax yearTips Venture Capital Trusts come with risks, but offer generous tax allowances that could entice investors ahead of the tax increases coming in April.
-
Profit from the rise of shareholder activism in Japan’s small companiesTips A professional investor tells us where he’d put his money. Daniel Lee, head ofJapan Research, AVI Japan Opportunity Trust, highlights three promising stocks.
-
3 stocks to buy in a high interest rate environmentTips We take a look at three stocks to buy in a high interest rate environment that should be able to navigate economic uncertainty.
