2/10/24

We had a strong finish to 2024, with the Mott Thematic Growth Portfolio rising 17.85% net of fees and including dividends, while the S&P 500 Total Return Index ended the year up 25.02%, including dividends. This marked a significant improvement from September 30, when the strategy was up 9.58%, compared to the S&P 500 Total Return Index’s 22.1%.

 

	FY’24	5-Yr Annualized	Since Inception
MCM Thematic Growth	17.85%	12.73%	10.35%
S&P 500 Total Return	25.02%	14.53%	13.34%

 

The strong performance during the quarter was driven by Shopify, which surged over 30% after delivering better-than-expected quarterly results. This was followed by Intuitive Surgical, which gained 26.3%, and Amazon, which rose more than 18.8%. Meanwhile, Microsoft, Illumina, and Mastercard were the worst-performing stocks in the group, with Microsoft being the only one to decline over the three months.

Overall, this helped narrow the significant gap between the strategy’s performance and the S&P 500 Total Return Index at the end of the third quarter.

It wasn’t the easiest year for us, largely because I am not a long-term believer in Nvidia, which was a major driver of the S&P 500’s gains in 2024. I believe the company trades at a very high valuation, and I’m skeptical that its future growth rates will be strong enough to justify the market’s current pricing. Additionally, I question how the market is valuing many AI-related stocks today. In many ways, this reminds me of the 2000 dot-com bubble—only after the bubble burst were we able to distinguish the good companies from the bad.

Part of my challenge with this market is that I have experienced previous bubbles, including the technology bubble in 2000 and the energy and housing bubbles leading up to 2008. I tend to view Nvidia as representative of a similar bubble, driven by AI growth expectations that may take much longer to materialize than the market is willing to wait for.

Furthermore, I don’t think the market has fully priced in the uncertainty surrounding a potential second Trump term. Between January 2018 and October 2019, the market experienced significant turbulence, including a near 20% drawdown in Q4 2018, much of it driven by trade war tensions. This comes at a time when inflation risks remain unresolved, as evidenced by rising inflation swaps, which have pushed back toward the upper end of their two-year trading ranges.

It also doesn’t help that today’s market is one of the most expensive in modern history when considering Price-to-Earnings, Price-to-Sales, Price-to-Book, and dividend yield. When fundamentals start to matter again—and at some point, they likely will—the market may struggle to find buyers until valuations become more reasonable.

Our cash balance remains around 25% of the overall portfolio, down from its peak but still elevated. However, much of this decline is due to the rising value of the accounts rather than a reduction in cash holdings. In absolute terms, cash levels have remained relatively stable, but as a percentage of the portfolio, they have diminished.

That said, many risks remain unpriced in this market. Until valuations make more sense—and I believe that time will come—I will remain patient and wait for the right opportunities.

Until next time,

Mike

Michael Kramer
Founder
Mott Capital Management, LLC

The Thematic Growth Strategy is also made available by Interactive Advisors through a licensing arrangement with Mott Capital Management; performance may differ from the Mott Capital Thematic Growth Composite.

Annualized Performance
		YTD	1-Year	3-Year	5-Year
Mott net		17.85 %	17.85%	8.25%	12.73%
S&P 500 TR Index		25.02%	25.02%	8.94%	14.53%

N.A. – Information is not statistically meaningful due to an insufficient number of portfolios in the composite for the entire year. †  Performance reflects the non-annualized performance from 8/1/2014 to 12/31/2014. ** For periods with less than 36 months of composite performance, no 3-year ex-post standard deviation measurement is available.

Disclosure: Mott Capital Management, LLC is a registered investment adviser.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.  Investments involve risk and unless otherwise stated, are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendation made during the past twelve months. Past performance is not indicative of future performance.

An investment may be risky and may not be suitable for an investor’s goals, objectives and risk tolerance. Investors should be aware that an investment’s value may be volatile and any investment involves the risk that you may lose money. Investment performance of a model depends on the performance of the underlying investment options and on the proportion of the assets invested in each underlying investment option over time. The performance of the underlying investment options depends, in turn, on their investments. The performance of these investments will vary day to day in response to many factors. Asset allocation strategies are subject to the volatility of the financial markets, including that of the underlying investment options’ asset class. Diversification does not ensure a profit or guarantee against a loss. Stock markets are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.

The S&P 500 is a free-float capitalization-weighted index of 500 large-cap common stocks actively traded in the United States.  The index is shown as a general market indicator, and may not reflect the same exposures as the composite.

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Past performance is not indicative of future results.  The U.S. Dollar is the currency used to express performance.  Performance shown represents total returns that include income, realized and unrealized gains and losses.  Net of fee performance was calculated using actual fees.  Composite performance is presented net of foreign withholding taxes on dividends, interest income, and capital gains.  Withholding taxes may vary according to the investor’s domicile. 

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The annual composite dispersion presented is an asset-weighted standard deviation calculated using net returns of accounts in the composite the entire year.  The 3-Year Standard Deviation represents the annualized standard deviation of actual net composite and benchmark returns, using the rolling 36-months ended each year-end.

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