Weekly Investor – February 12, 2018
Volatility Returns
The headline for the past week was the return of volatility in the market. The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), the standard for measuring volatility in the market, leapt 115% on Monday, February 5th, to its highest level since August, 2015. The dramatic change in volatility was seen in stock prices, but also in more obscure trading strategies. In particular, there was focus on Exchange Traded Products (ETPs), which track the VIX, especially those ETPs that bet against volatility. After further ups and downs, the primary U.S. indices, the Dow, the Nasdaq and the S&P 500, fell ~6-7% for the week.
Some of the volatility appeared justified, or worthy of tracking. Investors are watching wages, which were higher in January and had an upward revision from the December 2017 report. One of the questions economists have been asking throughout the recovery is why wages were not accelerating as the economy grew and unemployment shrank. A second source of concern is government spending, coming on the heels of the budget bill. Stimulus spending during a period of expansion is not a textbook strategy. In addition, the stimulus is expected to increase deficit spending, putting pressure on U.S. Treasury yields.
The S&P 500® Index was down -3.9% for the week. The top-performing sectors in the S&P 500 Index included Telecommunications (-1.3%) and Utilities (-2.3%) while bottom-performing sectors included Basic Materials (-5.6%) and Energy (-6.4%). In the fixed-income market, the 10-year Treasury Yield was up during the week, ending at 2.8%.
We continue to seek those companies that reflect our Change-Based InvestingSM approach.
Positive Changes
V.F. Corporation engages in the design, production, procurement, marketing and distribution of branded lifestyle apparel, footwear and related products in the Americas, Europe and Asia Pacific. It operates through four segments: Outdoor & Action Sports, Jeanswear, Imagewear and Sportswear. VFC has over 30 brands under its stewardship, including The North Face, Vans, Wrangler Lee, Red Kap, Nautica and Majestic. V.F. Corporation was founded in 1899 and is headquartered in Greensboro, North Carolina.
VFC has a rare proven track record of M&A in the footwear and apparel industry. The company has shown a consistent ability to purchase brands at reasonable prices, increase their profitability and in some cases grow those brands for decades. After several years of slowing or declining sales, the company is beginning to grow both organically and through mergers and acquisitions. We believe this positive change, along with a strong management in place to execute it, provides VFC a runway for growth into the future. For these reasons VFC was added to our Large Cap Growth Portfolio.
Top 10 Equity Holdings
Large Cap Growth
| Alphabet, Inc. (Google, Inc.) | 7.4% |
| ON Semiconductor Corp. | 4.8% |
| Marvell Technology Group | 4.7% |
| Baxter International Inc. | 4.6% |
| Red Hat, Inc. | 4.5% |
| Masco Corporation | 4.4% |
| JP Morgan Chase & Co. | 4.3% |
| Fortive Corporation | 3.9% |
| MasterCard, Inc. | 3.7% |
| Lincoln National | 3.6% |
Small Cap Core
| Wintrust Financial | 3.0% |
| Carbonite Inc. | 2.8% |
| Mastec, Inc. | 2.5% |
| Fortinet Inc. | 2.5% |
| First Internet Bancorp | 2.4% |
Dividend Select
| JP Morgan Chase & Co. | 5.8% |
| Principal Financial | 4.0% |
| Marvell Technology | 3.9% |
| Las Vegas Sands Corp. | 3.7% |
| DowDuPont Inc. | 3.6% |
This newsletter presents selected recommendations from portfolio managers of Argent Capital Management LLC, a registered investment advisor. Opinions reflect the portfolio manager’s judgment on the date above and are subject to change. A list of stocks recommended by Argent is available upon request. You should not assume that these recommendations are or will be profitable. In the course of it’s business, Argent’s client accounts may be buying and selling these stocks.
