Global Trends E-commerce Fund seeks to achieve medium to long-term growth for investors by investing in the companies that are relevant to the powerful global trend in electronic commerce. The Fund’s portfolio will typically include global companies that directly benefit from the trend through their commercial model or act as facilitators to participants in the E-commerce trend.
The current negative moves we have seen in markets is linked to the US Treasury Secretary (Janet Yellen) comments relating to interest rates and inflation. She commented in an interview that the US may need to look to raise interest rates if the economy grows too quickly and sees higher inflation.
We have seen some broad-based selling in markets, with growth and technology stocks seeing the biggest declines, however this is not the first such ‘rotation’ we have seen in 2021. These rotations in the market are common and are typically short in timeframe.
Looking back to the NASDAQ correction we saw in mid-February, the NASDAQ index declined by -10.5%, but after this decline the index then increased to hit a new record high level in April. This shows that such rotations do not often last long.
Another important message here is the difference between profitable and unprofitable technology stocks. The Goldman Sachs Non-Profitable Technology Basket is an index consisting of US-listed technology companies that currently do not generate profits. This index is down -26.7% since its February high (see chart below), having never recovered from the last correction in February. Conversely, the DGT Ecommerce Fund not only recovered from the February decline, but then went on to reach new all-time highs
The key difference is that the Dominion Global Trends (DGT) E-commerce Fund portfolio invests in profitable growth businesses. This difference is critical. We are not investing in expensive growth stocks which have not yet proved their business models. We are investing in high-growth businesses which have proven their business models and are generating positive profits and cash flows. These stocks have performed well and continue to perform well.
The Bloomberg consensus is forecasting strong profit growth for the DGT E-commerce Fund in the future, well ahead of the market. The Fund’s holdings are expected to grow profits +25% over the next 12 months and +22% the year after this compares to +15% and +10% respectively for the S&P 500 index). The Fund’s reported performance in 2021 YTD has been solid, up +4.4% so far, and up +45% year-on-year in USD terms.
The DGT Managed Fund, our multi-sector fund, has similarly seen some weakness because of the wider weakness in markets. But again, we do not see any reason for concern. Fund performance has been strong in 2021 YTD, with the Fund up +7.5% in USD terms and up +44% year-on-year. The outlook for the Fund remains very strong across the sectors we invest in, and we see no reason to be concerned about the Fund’s investment allocation. The Fund’s holdings are expected to grow profits +41% over the next 12 months and +31% the year after (this compares to +15% and +10% respectively for the S&P 500 index).
In the short-term we will often see market sentiment shift, and this can cause volatility. But the high- quality and high-growth rate in profits of the companies we invest in with the DGT Funds means that these short-term moves in markets are nothing to be overly concerned about. It is the growth in profits of our investments which will drive performance of the Funds in the medium-term, and this is what matters most.