Aug 2020: High Net Worth Sleeve Update

by | Aug 31, 2020 | Rebalance Rationales

HNW Holdings Update

The HNW sleeve is designed to give equity exposure to a group of individual stocks that we think offer attractive prospects through a combination of yield, growth, quality, and reasonable valuations relative to large cap peers.

Purchase:

As we know, Alphabet, Inc. (GOOGL) is a household name that focuses on advertising, operating systems and platforms, enterprise, and hardware products. With 40% market share in global digital advertising, GOOGL is the behemoth in this space.

We see Alphabet as one of the best-positioned companies in the digital ad sector, with exposure to some of tech’s most important secular trends through mobile search, YouTube and enterprise cloud computing. We expect Cloud to become a more central component of the thesis over time (as the business scales and margins improve) and expect Google to continue capturing market growth from the ongoing shift towards digital advertising. Key risks include revenue impact from potential product changes mandated by regulators, weaker-than-expected cost discipline, competition, and dilutive M&A.

As of right now, we believe that there is a substantial disconnect in GOOGL’s current valuation relative to itself, and more importantly, versus its peers. In fact, we believe that Google should trade at a premium to its peer group (currently trading at a discount), given its shareholder friendly actions (buybacks and disclosures) and new product catalysts. As of right now, we do not think that GOOGL is getting credit for their penetration into the Cloud space, which adds a larger kicker to potential valuation expansion. GOOGL case study here

Sale:

We are selling one of the original holdings in the HNW sleeve, Apple, Inc. (AAPL). After much spirited, yet collegial debate, we decided to sell AAPL based on its valuation. We believe that there is no longer an outsized asymmetry to the upside in this name, as it trades at a near 100% premium to its 5-year historical averages on almost all valuation metrics. Thus, we are swapping into GOOGL, as we believe it trades well below its intrinsic value.

 

Disclosures

 The Impact Series is a model portfolio solution developed by Aptus Capital Advisors, LLC. Aptus Capital Advisors, LLC is a Registered Investment Advisor (RIA) registered with the Securities and Exchange Commission and is headquartered in Fairhope, Alabama. Registration does not imply a certain level of skill or training. For more information about our firm, or to receive a copy of our disclosure Form ADV and Privacy Policy call (251) 517‐7198 or contact us here. Information presented on this site is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities or to advise on the use or suitability of The Impact Series, or any of the underlying securities in isolation. Information specific to the underlying securities making up the portfolios can be found in the Funds’ prospectuses. Please carefully read the prospectus before making an investment decision.

This commentary offers generalized research, not personalized investment advice. It is for informational purposes only and does not constitute a complete description of our investment services or performance. Nothing in this commentary should be interpreted to state or imply that past results are an indication of future investment returns. All investments involve risk and unless otherwise stated, are not guaranteed. Be sure to consult with an investment and tax professional before implementing any investment strategy.

SPDR S&P ETF Trust is an exchange-traded fund incorporated in the USA. The ETF tracks the S&P 500 Index. The Trust consists of a portfolio representing all 500 stocks in the S&P 500 Index. It holds predominantly large-cap U.S. stocks. This ETF is structured as a Unit Investment Trust and pays dividends on a quarterly basis. The holdings are weighted by market capitalization. The volatility (standard deviation) of the Impact Series may be greater than that of the SPDR® S&P 500® ETF.

Investing involves risk. Principal loss is possible. Investing in ETFs is subject to additional risks that do not apply to conventional mutual funds, including the risks that the market price of the shares may trade at a discount to its net asset value(“NAV), an active secondary market may not develop or be maintained, or trading may be halted by the exchange in which they trade, which may impact a fund’s ability to sell its shares. Shares of any ETF are bought and sold at Market Price (not NAV) and are not individually redeemed from the fund. Brokerage commissions will reduce returns. Market returns are based on the midpoint of the bid/ask spread at 4:00pm Eastern Time (when NAV is normally determined for most ETFs), and do not represent the returns you would receive if you traded shares at other times. Diversification is not a guarantee of performance, and may not protect against loss of investment principal. ACA-2008-35.

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