We had a strong finish to 2024, with the Mott Thematic Growth Portfolio rising 17.85% net of fees and including dividends, while the S&P 500 Total Return Index ended the year up 25.02%, including dividends.
This marked a significant improvement from September 30, when the strategy was up 9.58%, compared to the S&P 500 Total Return Index’s 22.1%.
The strong performance during the quarter was driven by Shopify (NYSE:SHOP), which surged over 30% after delivering better-than-expected quarterly results. This was followed by Intuitive Surgical (NASDAQ:ISRG), which gained 26.3%, and Amazon (NASDAQ:AMZN), which rose more than 18.8%. Meanwhile, Microsoft (NASDAQ:MSFT), Illumina (NASDAQ:ILMN), and Mastercard (NYSE:MA) were the worst-performing stocks in the group, with Microsoft being the only one to decline over the three months.
Overall, this helped narrow the significant gap between the strategy’s performance and the S&P 500 Total Return Index at the end of the third quarter.
It wasn’t the easiest year for us, largely because I am not a long-term believer in Nvidia (NASDAQ:NVDA), which was a major driver of the S&P 500’s gains in 2024. I believe the company trades at a very high valuation, and I’m skeptical that its future growth rates will be strong enough to justify the market’s current pricing. Additionally, I question how the market is valuing many AI-related stocks today. In many ways, this reminds me of the 2000 dot-com bubble—only after the bubble burst were we able to distinguish the good companies from the bad.
Part of my challenge with this market is that I have experienced previous bubbles, including the technology bubble in 2000 and the energy and housing bubbles leading up to 2008. I tend to view Nvidia as representative of a similar bubble, driven by AI growth expectations that may take much longer to materialize than the market is willing to wait for.
Furthermore, I don’t think the market has fully priced in the uncertainty surrounding a potential second Trump term. Between January 2018 and October 2019, the market experienced significant turbulence, including a near 20% drawdown in Q4 2018, much of it driven by trade war tensions. This comes at a time when inflation risks remain unresolved, as evidenced by rising inflation swaps, which have pushed back toward the upper end of their two-year trading ranges.
It also doesn’t help that today’s market is one of the most expensive in modern history when considering Price-to-Earnings, Price-to-Sales, Price-to-Book, and dividend yield. When fundamentals start to matter again—and at some point, they likely will—the market may struggle to find buyers until valuations become more reasonable.
Our cash balance remains around 25% of the overall portfolio, down from its peak but still elevated. However, much of this decline is due to the rising value of the accounts rather than a reduction in cash holdings. In absolute terms, cash levels have remained relatively stable, but as a percentage of the portfolio, they have diminished.
That said, many risks remain unpriced in this market. Until valuations make more sense—and I believe that time will come—I will remain patient and wait for the right opportunities.
Until next time,