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QVP In August

It hardly needs to be stated that the August just gone was a worrying one for many investors as markets around the world plunged in value. China’s economic freefall has continued unabated since the start of summer and the repercussions have been felt here in America as well.

A look at the chart below shows the fortunes of the S&P 500 and the Shangai Composite Index from March 1st up until the end of August. Despite the volatility of the Chinese market, the S&P 500 looks very stable. There really isn't any correlation between the pair, but when we needed an excuse to fall, that’s what the media pointed to: China.

As of August 31st, the Shanghai Composite Index has fallen 38% since its peak in June.

I'm sure you would not take it as a surprise if I were to suggest that the media is not particularly helpful when it comes to analysis of the market, considering that the relationship between the ^SPX and ^SSEC was not predictive and only backward-looking. Fortunately for us, our numbers here at KAM in predicting an impending downturn even without a specific catalyst we could point to when we originally made our forecasts.

The pullback we saw in the domestic market—the S&P 500 dropping by 6.26% and the Dow Jones Industrials by 6.57%—was unexpected by many, and it is unclear as to how volatile the market will remain in the coming days.

Here at Kruse Asset Management though we have highlighted the strong likelihood of a healthy correction in the market in the second half of the year for some time now. It was remarked upon as recently as our Q2 newsletter, available for all on our website, and in an earlier article we published: Investing In A Bear Market. Reproduced below is the forecast chart which was included in that article indicating a future downturn in the S&P 500.

After seven years of consistent domestic growth—and the S&P 500 struggling to crack the 2200 mark for a year—such a correction as we have happening right now should not be a concern for well-managed, diversified portfolios. It is a positive sign for investors.

Unsurprisingly, the stocks prices of many companies suffered throughout August. Our QVP strategy was also down for the month, with a return of -4.62%, although still outperforming the S&P 500 by 1.64%. QVP still remains the superior option for investors on a long-term basis, outperforming the S&P 500 as seen below.

QVP has outperformed the S&P 500 for eight of the past ten years.

What we can take from this is that the market can find a convenient reason in the moment to pin a major action on—even though it might really have very little to do with anything.

As is the case though, a handful of companies saw positive growth. Listed below are the top five performing stocks in August for our large-cap value strategy:

5. Helmerich & Payne (HP) +3.35%

The Okalahoma-based drilling company had a relatively quiet month after announcing their third-quarter results for 2015 at the end of July where they narrowly beat on earnings. They were upgraded by JP Morgan from underweight to neutral.

4. L Brands (LB) +4.58%

Despite being downgraded by BMO Capital Markets from outperform to market perform, the retail group announced their second-quarter financial results with profit of over $200 million, meeting Wall Street expectations. The company expects full-year earnings to be in the range of $3.58 to $3.73 per share.

Their regular quarterly dividend of $0.50 was also declared for September 4th of this month.

Bath & Body Works is just one member of the L Brands stable.

3. Noble Corp (NE) +8.95%

Another company upgraded during the month of August, Global Hunter Securities changed their status for the drilling company from accumulate to buy.

Noble Corp was able to capitalize on rising prices for crude oil at the end of the month after a pipeline outage in Nigeria led to a reduction in supply by the African country. The company's current net profit margin of 20.04% is above that of the industry average.

2. NVIDIA (NVDA) +13.15%

The chip manufacturer announced their second-quarter results too with revenue and earnings both easily topping expectation, with the company also projecting this current quarter's revenue to be higher as well. Revenue in the three months ended in July rose 5%, year over year, to $1.15 billion, yielding EPS of $.034, excluding some costs.

It was also announced that Pixar had reached an agreement to use NVIDIA technology--specifically their quasi-Monte Carlo (QMC) rendering methods--in speeding up production on their animated films. Their next film, scheduled to be release this year, is The Good Dinosaur.

Seeking to capitalize on the growing eSports movement as well, the company announced a new graphics card, the GeForce GTX 950, which is specifically aimed at players of hugely popular MOBA games, such as Dota 2 and League of Legends.

The 2014 League of Legends World Championships drew thousands in attendance in South Korea.

1. Best Buy (BBY) +13.78%

Best Buy were another to announce second-quarter results and also beat expectations. In-store sales were up by 3.8% and their online sales by an impressive 17%--far outstripping analyst expectations of their online performance.

The big-box also began selling Apple Watches at its stores in August, the exclusive retail provider aside from Apple Stores. Furthermore, Best Buy will start selling AppleCare warranties later this year and become an authorized service provider for Apple products by the holiday season, forging closer bonds with the tech giant.

Moody’s raised its rating on Best Buy to Baa1 from Baa2, with Raymond James also upgrading the retail giant; from market perform to strong buy.

Demand for the Apple Watch has been attributed to fast-falling sales of traditional watches.

Check out the chart below for a more in-depth look at the performance of QVP’s five top stocks during the month of August. Explore the Kruse Asset Management website to find out more about our premier strategy, QVP.

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