In the past week we have seen a notable pullback in technology stocks. The NASDAQ Index has fallen by close to 10% and VIX (measure of market volatility) has spiked to 3-month highs. It is worth noting this still leaves NASDAQ above its price level at the start of August. This is a price correction, but this is no crash. Given there has been no change in economic or sector circumstances, we believe that profit taking after strong price moves is the most likely cause of this price correction in the tech sector.
Technology stocks have significantly outperformed in 2020, as many of these companies have benefited from restrictions imposed due to the COVID-19 pandemic. This has led to what is being termed the ‘TINA’ (‘there is no alternative’) trade, in which investors looking for growth have had little option but to gravitate towards the few stocks which are still growing.
Dominion’s Ecommerce Fund is our most heavily exposed Fund to the technology sector. Despite this exposure, the Fund performed much better than the NASDAQ last week. There are two reasons for this:
First, while the NASDAQ is approximately 40% FAANG (Facebook, Apple, Amazon, Netflix, Google… stocks which saw the biggest declines last week), Dominion’s Ecommerce Fund is much more diversified. Our definition of Ecommerce is much broader than just FAANG, and as such our Fund’s exposure is less concentrated in FAANG than the NASDAQ index and most technology funds.
Second, the proprietary risk management systems we have designed to protect investor capital when markets move suddenly allowed us to act quickly and protect investor returns.
We strongly believe in the Ecommerce trend. This long-term structural growth trend is very clear and has not changed – companies we invest in have continued to add users and the growth they have experienced during the coronavirus pandemic is simply an acceleration of that trend. The Ecommerce Fund’s past performance clearly demonstrates that it is well positioned to capture this growth – and last week shows that it is also capable of protecting investor capital when the market wobbles.
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