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June 14, 2023

Commentary: NCM Core Global and NCM Core International

On June 14, 2023, Portfolio Manager Phil D’Iorio, CFA outlined his current observations on market breadth, valuations and market positioning.


Good afternoon. It's June 14th, 2023. My name is Phil D’Iorio and I'm the lead manager for the NCM Core Global and Core International Funds. Today, I'm going to give you an update on the funds with a focus on market breadth, valuations and market positioning.

So starting off with market breadth, it's been a really big concern so far this year. The technology stocks, particularly the Mega-cap technology stocks, have been very strong in terms of performance this year, but the majority of stocks in the S&P 500 have been left behind. So this has been a concern for investors.

In very recent days, breadth has started to improve. Last week there was a period of time in about four trading sessions, the number of stocks that went above their 200 day moving average increased from 38% to 53%. So we're starting to see the signs of breadth improving.

Another signpost is just looking at the areas of the market that have underperformed. That would be small caps, mid caps, emerging markets. I know this is a very small time period, but from June 2nd to June 9th, you can see here that the S&P small and mid-cap index as well as the emerging market indexes are really started to improve. And so we think that is a positive development.

Also to point out that narrow market breadth isn't always bad. A strategist at Bank of Montreal, Brian Belsky, did a study going back several decades and just analyzed periods of time when the five largest stocks in the market significantly outperformed the rest of the S&P 500. And this has happened on numerous occasions.

As you can see on the left hand side of the chart, what was interesting is the conclusion of this work showed that the very narrow market breadth eventually resolved itself and the average return 12 months later was about 10.7% for the period that was under consideration.

Another concern that investors have right now is that the markets are expensive. And if you just look at the headline PE, the markets do look expensive. But if you try to dissect the ten largest stocks from the remaining 490 stocks, it does tell a very different story. The ten largest stocks, including the Mega Cap technology stocks, trade at almost 30 times forward earnings. But if you look at the remaining 490 stocks in the market, they trade at about 16.4 times on a PE basis, which is just a little bit more than the average over the last several decades of about 16 times. So you strip out the top ten, market actually doesn't look that expensive based on a historical perspective.

Finally, wanted to touch on positioning. What this chart shows is fund managers - it's actually a fund manager survey by Bank of America that happens every month. It's a global survey. And what it shows is that the net overweight positioning for global fund managers in May of 2023 is sort of at the highest it's been since March of 2009.

So fair to say, you know, market positioning is very, very defensive and it sort of fits the narrative that exists on Wall Street today with the vast majority of analysts, strategists being very negative on the market. And so earlier this year, when that peak negativity was in place, we started increasing the cyclicality and adding more offense to our portfolios on the belief that, you know, positioning was very defensive and that sentiment was very, very negative, rivaling periods like the great financial crisis.

So, you know, starting earlier this year, we've been adding to more cyclical areas of the market, including technology, adding some semiconductor companies, adding to industrials and consumer discretionary. And we believe that that's the right thing to do, given how defensive the market is positioned at the moment.

Thank you very much for your time.


Phil D’Iorio is a Portfolio Manager, with Cumberland Investment Counsel Inc.(CIC). CIC is the sub-advisor to its affiliate, NCM Asset Management Ltd. The information in this video is current as of June 14, 2023 but is subject to change. The contents of this video (including facts, opinions, descriptions of or references to, products or securities) are for informational purposes only and are not intended to provide financial, legal, accounting or tax advice and should not be relied upon in that regard. The communication may contain forward-looking statements which are not guarantees of future performance. Forward-looking statements involve inherent risk and uncertainties, so it is possible that predictions, forecasts, projections and other forward-looking statements will not be achieved. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.



Phil D'Iorio, MBA, CFA

I search around the globe for best-of-breed companies trading at attractive valuations. And I spend a significant amount of time thinking about portfolio construction to ensure that the portfolio is optimized to reflect where we are in the cycle.