GK: 4th Quarter 2021 Portfolio Review
The quarter started strong, with the fund being up more than 9 percent over October and November. Unfortunately, though, in December a series of events came together that rattled equities across the globe and weighed down our holdings.
First, in the face of persistently high inflation and a tight labor market, the Fed took an increasingly hawkish tone, signaling that they would act more forcefully – and sooner – than many market observers could have imagined only months before.
Higher interest rates are bad for growth stocks with high multiples, whose valuations – which in large part depend on future earnings – take a hit due to higher than anticipated borrowing costs. This dynamic impacted a number of our tech investments negatively.
Second, the collapse of President Biden’s Build Back Better Act was a significant disappointment. Not only did the bill’s added spending have the potential to prop up the broader economy, but it also would have provided a big boost to solar and other climate change-related holdings.
With the Democrats’ credibility now damaged and Republicans unlikely to cooperate on any meaningful legislative initiatives ahead of this year’s midterms, the chances that Build Back Better gets revived seems remote. That said, climate change remains a major threat, so businesses that offer services and products that help meet this challenge are poised to do well over the longer term in our opinion.
Third, cryptocurrencies collapsed, with Bitcoin and Ethereum each shedding just under 20% of value. Fintech companies in the fund, including Block, Inc. (formerly Square) and Coinbase, took on collateral damage as a result of cryptocurrencies massive declines. The good news is that this sector, while likely to remain volatile, has rebounded since reaching lows in January, suggesting that this blip was out of the norm.
Cumulatively, these events created a triple whammy of bad news, causing GK to lose the momentum it created in October and November. Even so, the fund ended the quarter up nearly 7.2%, which was better than other funds with a similar “innovation” philosophy, some of which finished the same period in the red.
Meanwhile, it’s worth noting that the best fourth-quarter performers were oil and traditional energy firms. These are areas of the market that the fund will never venture into due to our concern for the environment and desire to invest in companies that affect positive change in the world. Because of this, it is challenging, if not impossible, to compare GK to funds and indexes that reflect a different global perspective.
In sum, our relative performance was strong during the quarter. And while the actual returns were short of our expectations, we are optimistic that some of the issues that created challenges in December (and into January) will recede in time and remain confident in our multi-thematic approach.
|Ticker||Security Description||Portfolio Weight %|
|LIT||GLOBAL X LITHIUM & BATTERY T||3.89%|
|HD||HOME DEPOT INC||3.45%|
|IIPR||INNOVATIVE INDUSTRIAL PROPER||3.41%|
|MGM||MGM RESORTS INTERNATIONAL||3.40%|
As of 12.31.2021. Subject to change. Cash is not included.