We aren't taking a directional view on the market, hence rate neutral on its valuation.
#OUTSET MEDICAL STOCK SERIES#
Not to mention a series of operating losses. It's thin gross-net margins mean little cash is fed below the bottom line. Here we demonstrate there are better alternatives to OM in the haemodyalisis space and medical technology ("medtech") sector in general. Hence, profitability and return on capital are paramount in the arsenal to defend against these threats. Indeed, the macro-thematic has turned to that of inflation, central bank tightening, supply chains, energy crises and geopolitical conflicts. The stock has displayed many of the undesirable characteristics we're looking to avoid in the forward looking regime. This point is extremely relevant to our thesis on Outset Medical, Inc. Alternatives have outperformed in FY22Īgain offering investors strategic and tactical alpha as a liquid diversification enhancer to smooth portfolio returns Inclusion of alternative asset classes as such have proven to smooth equity portfolio returns in 2022 as well, seen later. The 'sector' is strengthening relative to the SPX and broke out to the upside in early 2022. Trend following strategies, particularly managed futures have fed strategic and tactical alpha to balanced portfolios in 2022 (Exhibit 4). The following two charts were taken from a previous analysis but illustrates this point perfectly. Long end of Treasuries catching a bid in late June, correlations narrowingĬould build the case for long-dated bonds if the near-term continues to worsenĪlas, low-beta, high quality strategies continue to outperform in 2022 and offer uncorrelated equity returns for investors to position into their portfolios. That, and correlations have narrowed leading to a bifurcation in long-dated treasuries to the SPX. The long-end has caught a bid lately and looks to have bounced from lows in the near-term. This appears to have settled and looks to return back to normalized levels however. This is partly due to the rate of change in losses spurred on by covariances heading to 1. Investors with pure stock-bond exposure have incurred heavy losses in 2022. The factor rotation out of growth has seen heavy inflows into low-beta, value and 'quality'-based strategies as the most reasonable hedge to equity drawdowns.Īdding further complications is the recent uptrend in stock/bond correlations. Still, losses in highly-correlated risk assets have compounded due to the market's weighting to tech and growth as a factor in 2020/21'. S&P 500 weakening whilst giving short-bias strategies the opportunity for tactical alpha in equity portfolios as well Short growth has proven to be a liquid diversifier, and equity hedge that remains ITM in FY22 Holders of the SARK ETF and 1x inverse ETFs to the SPX have narrowed drawdown and held exposure to volatility-premia in doing so, whilst adding a source of liquid, tactical alpha. Short-growth has also turned out to be an effective equity hedge that remains in the money to date. The high beta and growth trade is still beaten down and many profitable growth names trade at respectively discounted multiples. Still, a higher rates regime is here to stay and this has direct implications to equities. With oil and copper both entering sharp consolidation in June the page now turns to inflation expectations. It also suggests a weakening of cost pressures to manufacturers and producers, key to inflation trends Oil and Copper prices weakening suggesting wind back in industrial activity, The long-end remains above 3%, with the 20yr offering the most upside in respect to income at a 3.31% YTM. Meanwhile, UST yields have pulled back with the 10-year retracing from highs of ~3% to offer a YTM of 2.82%. The RBA hiked its cash rate by 50bps to 1.35% overnight, in unison with moves in the US and EU. The 'resources' trade (oil, gas, metals, etc.) is showing signs of exhaustion which starts to raise questions on the aggressiveness of central bank tightening policies.
With half the year now behind us visibility is now clearer on expected returns across asset classes for the remainder or FY22. Mailson Pignata/iStock via Getty Images Investment Summary From the Portfolio Manager's Desk
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