Master Lego Builder

Like many of you, I have had to transform my daily routine over the last few weeks to become an IT expert, an online teacher, a content junkie and a Lego master builder!

As a Research team, we are also building on the many tools and models we have and are adopting new metrics in order to invest in a post COVID-19 environment. Along with the many conversations with our managers and expert of networks, we find ourselves adapting our questions and thinking from the macro to the micro.

As you may remember from school, macroeconomics refers to the study of how an economy behaves (i.e.: GDP growth). Microeconomics on the other hand refers to the study of economics at the individual and firm level.

In practicality, we realize after spending the last month discussing and debating what the path of the economic recovery looks like- our swoosh scenario has become more popular by the way- we are evolving our analysis closer to where Main Street meets Wall Street.

One example we are looking at is the disparity between how the S&P 500 index is constructed. In simple terms, the index weights the underlying stocks by market capitalization, meaning the biggest companies have the largest weightings. This year alone, an index of the same 500 stocks weighted equally has underperformed by over 700 bp. What this tells us is most of the stock market performance has come from a few stocks that are not representative of what is happening in the economy.

We are continuously improving our framework that now involves looking at railcar traffic, gasoline demand, auto sales, as well as hotel and airport volumes. Supply chain disruptions and changes in consumer spending are also important metrics to measure as our economy slowly reopens.

One advantage in being invested with smart investors is the access to information and data to understand the impact of this economic shutdown (and recovery) on individual companies and management teams. As I mentioned last week, we continue to have conviction that active strategies may be in a good position to take advantage of an environment that rewards quality companies. Our managers invest in companies not GDP.

If you have any questions or want to have a conversation about the market or your portfolio, please contact Liz, Ed, Fred, Scott, Tyler, or myself. Your Sendero team is ready to help. 

Best Regards,

Amaury de Barros Conti