To Our Investors and Friends,
The S&P 500 Index appears to have made a bottom in March, ending, at least temporarily, the decline that began in January. The Index finished the month up 3.6%, ending the quarter down a more modest 5.0%. Oil exploded higher as soon as Russia invaded Ukraine, as it became clear that Russia’s approximate 10% of daily global production would not quickly be replaced. Oil finished the month at $100 a barrel, a 4.8% gain. The 10-year Treasury bond responded with a quick 49 basis point increase to end at 2.32% on fears of sustainable inflation. Short-term rates moved even faster, reducing the 2- versus 10-year spread to four basis points from 39 basis points a month ago. The major market indexes experienced an initial sharp decline but rebounded to end the month higher. The Bloomberg 1000 Growth Index moved up 3.6% and the Bloomberg 1000 Value Index increased 2.3%. Small cap indexes bounced slightly less as the Bloomberg 2000 Growth Index advanced 1.4% and the Bloomberg 2000 Value Index increased 1.2%.
We are surprised by the severity of the one-way market that dramatically sold off technology stocks in favor of commodity-driven businesses over the last five months. The market is actively trading data-driven businesses for oil-driven businesses, reversing a trend that has dominated popular indexes since the beginning of the Information Age in the 1980s. We believe this is temporary (likely no longer than a few quarters) and driven by a few factors, the most obvious being increases in commodity demand driven by the restarting of a global economy suppressed by COVID-19 and the invasion of Ukraine. Surprisingly, the most significant of the factors is the proliferation of algorithmic trading among hedge funds that analyze vast amounts of data to find short-term trends to invest in. This has exacerbated the decline of technology stocks and the increase in commodity-based stocks over the last five months.
Despite this dramatic market repositioning, we remain steadfast in our view that data-driven businesses should again dominate index performance within a reasonable time frame. This is based on the view that data is becoming far more important than oil in running the digital economy. As seen in the chart below, the amount of global data generated is accelerating, and is being increasingly used by companies to make better business decisions. According to Frank Slootman’s The Rise of the Data Cloud, companies across the globe are currently collecting, processing and managing their businesses based on data at an accelerating rate, striving to improve efficiency and profitability with better data-driven decisions.
Source: Melvin Vopson’s article The World’s Data Explained.
A zettabyte is a measure of storage capacity expressed as 1 trillion gigabytes.
In his book, Slootman states “an organization that masters its data positions itself to claim a sustainable competitive position within its industry. Your chances for success improve if you are data-driven.” He further explains that “The data economy is powered by data network effects. The more data that is shared…the more value is created.” We believe data sharing will move from the periphery to the center of business decision-making as companies providing data cloud services help businesses generate data network effects. Data integration ultimately allows companies to conduct business with each other in seamless ways. We believe the market significantly underestimates the power of these data network effects in accelerating business decisions, which ultimately should result in faster economic growth that generates greater profits for all participants.
Kingsland Investments’ focus on powerful long-term trends and the businesses and management that drive them is designed to accelerate the discovery of new market leaders. Although these companies may be briefly out of favor at times, strong, sustainable growth should lead investors back to them in time. After the last few months, growth is trading at an unusually attractive level. We believe now is a time to consider investing in these emerging technology leaders.
All the best to you,
Arthur K. Weise, CFA
*Effective January 12, 2022, the Kingsland Growth Advisors name changed to Kingsland Investments. The views expressed are those of Kingsland Investments as of April 1, 2022, and are not intended as investment advice or recommendation. For informational purposes only. Investments are subject to market risk, including the loss of principal. Past performance does not guarantee future results. The stocks mentioned are for illustrative purposes only and are not a recommendation to buy or sell. There can be no assurances that any of the trends described herein will continue or will not reverse. Past events and trends do not imply, predict, or guarantee, and are not necessarily indicative of future events or results. Investors cannot invest directly in an index.