The Exorcist: Good (Growth) Triumphs

A follow-up to October’s post ‘Ghostbusters: Busting the Fear of Market Volatility’ from TEAM Jersey Chairman and Fund Manager Mark Clubb.

I told you it would be alright! So, what did you think of the 2021 annual Halloween Horror Movie? It was a bit spooky and scary at points but the Ghostbusters or “Growthbusters” won through.

(Read my previous post on ‘Growthbusters’ here).

Despite all the frightening incidents and sometimes depressing news, each of the top three U.S. equity market indexes closed October at all-time highs. November has seen a continuation of that trend. Everyone has recovered and there is no better measure of that than the CNN Fear & Greed Index.

When the market pulled back on Halloween fears in early October, the Fear & Greed Index fell to nearly 30. This level represents “extreme fear.” And in the past, it has often taken many months to recover. But now, just over one month later, the index is back at 83, deep into “extreme greed” territory. So much for the horror movie. We are back into “buy the market” and this is additionally evidenced by the increase in fund flows. According to Bank of America, investors are on course to put more money in shares this year than in every other year since 2001 combined.

The TEAM International Equity Fund also participated in the improved equity market, rising 4.1% on the month. 63% of the Fund is invested in high quality U.S. listed companies. Companies we all use every week, if not every day, of our lives. Again, despite the apparitions, both the US Central Bank (Fed) and the Bank of England are keeping interest rates the same for now, i.e., close to zero. Personally, I think Fed Chairman Powell wants his job renewed by President Biden and will strive to not rock the boat by keeping monetary policy super accommodative (i.e. keeping interest rates low). But the major “Proton Pack”, the fictional energy-based capture device used for capturing and entrapping ghosts in the Ghostbusters film, was the third quarter earnings reports announced during October.

According to FactSet, as at time of writing, the average earnings surprise in the S&P 500 so far is 10.3%, and the S&P 500 is on track to achieve 36.6% average earnings growth and 15.8% average sales growth. Back to the earnings. For Q3 2021 at the time of writing 82% of S&P 500 companies have reported a positive EPS surprise and 75% of S&P 500 companies have reported a positive revenue surprise.

And here’s what FactSet is anticipating for the end of the year: analysts expect earnings growth of more than 20% for the fourth quarter and earnings growth of more than 40% for the full year. Admittedly, these above average growth rates are due to a combination of higher earnings for 2021 and an easier comparison to weaker earnings in 2020 due to the negative impact of COVID-19 on the majority of the market’s companies.

If we compare earnings this year with 2019 (skipping the low numbers in 2020), the compounded earnings growth rate for all companies is still 16.4% per year, which is exceptional. We haven’t seen growth rates like that since 2012. That year the S&P went up 13.4% followed by 29.6% in 2013. However, these recent results have also revealed which companies are increasingly emerging as market leaders and which are not. The high-quality companies with strong fundamentals are breaking further away.

One of the biggest headwinds for earnings has been the global supply chain bottleneck. After all, if your product doesn’t make it to market, you can’t sell it. We are all individually aware of this frustration. Central Banks are also blaming the current inflation we have on these supply chain bottlenecks but see the consequent inflation as “transitory”.

So, the easing of global bottlenecks should further improve the outlook for revenues and earnings with potentially decreased inflationary pressures. The good news is that supply chain issues would appear to be easing. Freight costs are coming down, which indicates that bottlenecks are easing. The WCI Composite Freight Benchmark rate shows the cost of a 40-foot shipping container fell about 9.5% from $10,500 in September to about $9,500 in October (RBC Capital Markets). And the Baltic Dry Index, a benchmark for the cost of shipping raw materials by sea, has fallen almost 40% since early October and has stayed at the lows.

However, let us assume inflation is not just about “supply chain bottlenecks”. Inflation is fatal for fixed-income investors.

Here is some arithmetic:

  • If rising inflation caused 30-year bond yields to rise from 2.0% to 3.0% over the next 12 months, the value of that bond would fall 20%.
  • If 30-year yields doubled from 2.0% to 4.0%, the price of the 30-year bond would fall more than 35%.
  • If the above outlooks hold true, then the best place to be invested is in high quality growth companies. Yes, they have an initial rough patch. But ultimately, they win through in a big way.

Why? Because they can pass that inflation onto us, the consumers and they have the financial strength to weather higher borrowing costs (interest rates). Many have cash (not debt) anyway. In inflationary times, it is the high-quality companies that sell in-demand goods and services that can protect their profits by increasing their prices.  Yes, these pass-through costs aren’t great for you and I as consumers, but this is what separates top-tier businesses (and their shares) from the average. Consumers are still willing to pay for the goods/services of quality businesses when prices are high. Not so much for average businesses.

So, think personal hygiene products like soap, shower gel, shampoo, deodorant, or toothpaste. How about cosmetics? (Procter and Gamble, Unilever, J&J, L’Oréal and Estee Lauder). What about your leisure time? Are you going to cut Disney Plus? You might delay getting a new smartphone (Apple) but not for that long. Internet connected devices have become essential items. Then there are the companies that make the critical parts such as Nvidia and QUALCOMM.

Then there are today’s other essentials, Microsoft, Google and your cyber security products and services (like Crowdstrike), not to forget the “cloud” (Microsoft and Amazon). We own these “castles” in the TEAM International Equity Fund and they are doing rather well. Now, I wouldn’t be surprised if recent highs reached in equity markets take a pause in the next week or so, but that’s good. Pauses refresh the market. They also give you time to invest rather than chasing higher prices.

Let’s stick to the historical facts. From 1928 to 2020 the principal equity market, the U.S. S&P500 has returned on average 9.8% annually. It is entirely reasonable to expect difficult periods, periods of 10% to 20% corrections. These bear markets should not be a surprise. It is alarming and frightening when it happens. Think “Edward Scissorhands” or “It”. It spooks investors out. Don’t be spooked. Take a deep breath, it will almost certainly be alright (more on “almost” later). Just think of the last few years; the Global Financial Crisis, and the sequel, the terrifying Covid pandemic induced bear market. Those crises were fabulous opportunities to invest for long term wealth creation.

The bear market following the 2008-2009 Global Financial crisis lasted less than 18 months with most of the decline occurring in the first 6 months and then shares started rebounding immediately. It’s been a similar story for every significant decline since, culminating with the COVID-19-related crash last spring. That was among the sharpest stock market drops in history. But it lasted just three months, and stocks were already back at all-time highs by the summer. The closest thing to a real bear market most of us have experienced was the dot-com bust early 2000s. The overall market fell around 50% over a two-and-a-half-year period from early 2000 to late 2002.

Why does this matter? Because bear markets aren’t always so brief. The most famous example occurred during the Great Depression. (This is the “almost” bit). The U.S. stock market crashed in October 1929. In total, shares lost nearly 50% of their value from September through November that year, and then another 80% over the next three years. While the worst decline was over, the bear market went on for another 10 years or so.  Investors suffered another seven more corrections ranging from 20% to as much as 50% over that time. And the market didn’t reach a new high until late 1954, nearly 25 years after the previous peak in 1929. 

Notwithstanding the above, and the world was very different then, particularly coming out of the true real-life horror of the First World War, in most bear markets, there was only and only one thing to do. BUY SHARES in high quality fundamentally strong companies that will survive and continue to prosper.

One last ‘Breaking News’ item:

China’s ambassador to the United States read a letter from Chinese President Xi Jinping at a dinner hosted by the National Committee on U.S.-China Relations in Washington on Tuesday, last week. It said in part that China is willing to “enhance exchanges and cooperation across the board” with the United States and bring relations between the two back on track.  Everything could fall apart, of course. But this could represent the beginnings of a shift in relations that gives both countries the breathing room they need. That’s good for global equities.

When we have these “white knuckle” periods think of the Baron Rothschild quote, “Buy when there’s blood in the street, even if the blood is your own.”

Mark Clubb

Chairman and Fund Manager

TEAM Jersey

Disclaimer This document is issued by Theta Enhanced Asset Management Limited and does not constitute or form part of any offer or invitation to buy or sell shares. It should be read in conjunction with the Fund’s Prospectus, key investor information document (“KIID”) or offering memorandum. Theta Enhanced Asset Management Limited is authorised and regulated by the Jersey Financial Services Commission, registration number 80836. The Company’s registered office is 10 Hill Street, St Helier, Jersey JE2 4UA. The price of shares and income from them can go down as well as up and past performance is not a guide to future performance. Investors may not get back the full amount originally invested. A comprehensive list of risk factors is detailed in the Prospectus and KIID and an investment should not be contemplated until the risks are fully considered. The Prospectus and KIID can be viewed at and at The contents of this document are based upon sources of information believed to be reliable. Theta Enhanced Asset Management Limited has taken reasonable care to ensure the information stated is accurate. However, Theta Enhanced Asset Management Limited make no representation, guarantee or warranty that it is wholly accurate and complete. The TEAM International Equity Fund is a sub- fund of GemCap Investment Funds (Ireland) plc, an umbrella type open-ended investment company with variable capital, incorporated on 1 June 2010 with limited liability under the laws of Ireland with segregated liability between sub-funds. GemCap Investment Funds (Ireland) plc is authorised in Ireland by the Central Bank of Ireland pursuant to the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011 (S.I. No. 352 of 2011) (the “UCITS Regulations”), as amended. Gemini Capital Management (Ireland) Limited, trading as GemCap, is a limited liability company registered under the registered number 579677 under Irish law pursuant to the Companies Act 2014 which is regulated by the Central Bank of Ireland. Its principal office is at 118 Rock Road, Booterstown, Co Dublin A94 V0Y7 and its registered office is at 1 WML, Windmill Lane, Dublin 2, D02 F206. GemCap acts as both management company and global distributor to GemCap Investment Funds (Ireland) plc. GemCap UK Limited Ltd provides distribution oversight services to GemCap acting as global distributor and is responsible for the oversight of all distribution arrangements for the sub-fund

In other news...


You must submit your agreement before access to the site can be granted. Important information regarding our Cookie Policy can also be found here


October 2022   This website is directed at institutional clients and individuals who have taken appropriate professional advice, who possess the necessary experience, knowledge and expertise to make their investment decisions and properly assess the risk that it incurs. Gemini Capital Management (Ireland) Limited (“GemCap”), trading as GemCap, is a limited liability company registered under the registered number 579677 under Irish law pursuant to the Companies Act 2014 which is regulated by the Central Bank of Ireland, reference number C155302. Its principal office is at Suite 22-26 Morrison Chambers, 32 Nassau Street Dublin 2, D02 X598 and its registered office is at 7th Floor, Block A, One Park Place, Upper Hatch Street, Dublin 2, Ireland. GemCap acts as management company and global distributor to GemCap Investment Funds (Ireland) plc (“UCITS”). GemCap Investment Funds (Ireland) plc is an umbrella fund with segregated liability between sub-funds incorporated as an investment company with variable capital registered under the registered number 485081 under Irish law pursuant to the Companies Act 2014 and authorised by the Central Bank of Ireland, reference number C67292, pursuant to the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011 (as amended) ), having its registered office at 7th Floor, Block A, One Park Place, Upper Hatch Street, Dublin 2, Ireland(“the Fund”) . The contents of this site have been prepared solely for information purposes and is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. GemCap and the Fund does not give or make any guarantee, representation, warranty or other promise or confirmation (whether express or implied) as to its accuracy or completeness.   Risk Warnings Please remember that the value of investments and the income from them can fluctuate (this may partly be the result of exchange rate fluctuations) and you may not get back the full amount invested. Past performance may not a reliable guide to future performance. A comprehensive list of risk factors is detailed in the Prospectus and the key investor information document (“KIID”) and an investment should not be contemplated until the risks are fully considered. The Prospectus and KIID can be viewed at GemCap does not provide financial, investment, tax or any other professional advice in any way and none of the information on this site should be construed as such. None of the information contained on this site constitutes an offer to buy or sell or a solicitation, recommendation, invitation by or on behalf of GemCap to buy or sell any security, product, service or investment. Any opinions expressed on this site do not constitute investment advice and independent advice should be sought where appropriate. The view and/or opinions expressed by GemCap through this or any other platform, may be subject to change. The shares in the Fund have not been and will not be registered under the US Securities Act of 1933 (the “1933 Act”) as amended or the securities laws of any of the states of the United States. The Shares may not be offered, sold, transferred, pledged or delivered, directly or indirectly, in or into the United States or to or for the account or benefit of any US Person except pursuant to an exemption from, or in a transaction not subject to the registration requirements of the 1933 Act and any applicable state laws, nor in any jurisdiction in which the Fund is not authorised to be publicly sold. The Fund is available only in jurisdictions where their promotion and sale are permitted. The information contained on the website may not be redistributed directly or indirectly to any citizen or resident of the United States or any other jurisdiction where its distribution may be restricted by law. It is the responsibility of persons accessing the website to ensure compliance with the above.   Disclaimer for Investors in Switzerland The Fund and its sub-funds, Calamos Global Convertible Fund and Third Avenue Real Estate Value Fund has been approved by the Swiss Financial Market Supervisory Authority FINMA (“FINMA”) for offering to Swiss non-qualified investors. This website may contain advertising. In Switzerland, the representative is ACOLIN Fund Services AG, Leutschenbachstrasse 50, CH-8050 Zurich, whilst the paying agent is Banque Cantonale Vaudoise, Place St.-François 14, CH-1003 Lusanne. Swiss investors may obtain free of charge from the representative in Switzerland, the relevant fund documents, namely the prospectus, the key investor information documents, the articles of association, as well as the annual and semi-annual reports. Past performance results are no indication of future results. Issuance and redemption commissions are not included in the performance figures. Performance results referring to a period of less than twelve months (year-to-date-performance, start of investment fund within the last twelve months) are no reliable indicator for future results due to the short comparison period.   Additional information for Qualified Investors in Switzerland: The below-mentioned investment funds, which are also disclosed on this website, are neither registered with FINMA nor under contract for representation to Swiss investors. These investment funds may not be distributed neither to Swiss non-qualified and qualified investors nor exclusively to Swiss qualified investors:   GemCap Investment Funds (Ireland) Plc Atlantic House Defined Returns Fund Atlantic House Global Defined Returns Fund Atlantic House Total Return Fund Atlantic House US Enhanced Equity Fund Atlantic House Uncorrelated Strategies Fund Calamos Global Convertible Fund Calamos Growth and Income Fund Causeway Defined Growth Fund GSI Global Sustainable Value Fund GSI Global Sustainable Focused Value Fund London & Capital Global Balanced Fixed Income Fund London & Capital Global Conservative Fixed Income Fund London & Capital Global Defensive Equity Fund (this Fund has terminated and accordingly, Shares in this Fund are no longer available for investment) London & Capital Global Growth Fund London & Capital Global Growth Fixed Income Fund London & Capital Global Star Equity Fund London & Capital Global Balanced Fund London & Capital Global Equity Opportunities Fund Principal Asset Allocation Fund Semper Total Return Fund TEAM International Equity Fund Third Avenue Real Estate Value Fund   Legal This GemCap website and material contained herein (including information from third parties) is provided ‘as is’, without any representation or endorsement made and without warranty of any kind whether express or implied, including, but not limited to, the implied warranties of satisfactory quality, fitness for a particular purpose, non-infringement, compatibility, security, completeness and accuracy. By entering this site, you acknowledge and agree that the use of this site is at your own risk and to the extent permissible by applicable law, in no circumstances, including (but not limited to) negligence, shall GemCap be liable for any direct, indirect, incidental, special, consequential, or punitive damages, losses, costs or expenses nor for any loss of profit that results from the use of, or inability to use this site or any material on any site linked to this site (including but not limited to any viruses or any other errors or defects or failures in computer transmissions or network communications) even if we have been advised of the possibility of such damage. In addition, no liability can be accepted by GemCap in respect of any changes made to the content of this site by unauthorised third parties. All express or implied warranties or representations are excluded to the fullest extent permissible by law. We do not warrant that this site does not infringe any intellectual property rights of third parties. No data transmission over the internet can be guaranteed as totally secure. Whilst GemCap strives to protect such information and every effort has been made to implement security protocols, in line with relevant legislation to ensure safe processing and storage of any data transmitted, we do not guarantee and cannot ensure the security of any information which you transmit to us. Accordingly, any information which you transmit to us is transmitted at your own risk. The GemCap website is not a substitute for independent professional advice and users should obtain any appropriate professional advice relevant to their particular circumstances. The information on this site is issued by GemCap.   Cookies If you use the internet quite a bit, there’s a good chance you’ve heard of cookies. But what are they? Also known as HTML cookies, tracking cookies or magic cookies, these tiny files are automatically downloaded by your computer when you’re browsing online. Don’t worry – they’re perfectly safe. But we’d still like to take a moment to explain what cookies do, which ones we use and how to remove them – if you really want to. Are Cookies Safe? Yes, cookies are safe. The information they collect is completely anonymous. We never, ever, collect personal information using cookies. What’s more, cookies are not harmful to your computer, they take up minimal space and they can be removed with just a few clicks. GemCap’s Cookie Functionality
  • Cookies provide enhanced functionality and speed to our site
  • These cookies help us to recognise your computer when you visit and enable us to improve your visits to our website
  • Cookies assist us in identifying what kind of visitor/user you are, for us to provide you with the most relevant content
How Can I Remove Cookies? Most computers are set to download cookies automatically, so if you’re happy with everything you’ve read, simply carry on as you were. However, if you’re at all concerned about having cookies on your computer, deleting them is simple. Show me how to remove cookies Likewise, you can also change your computer settings so that it won’t download any more cookies. Show me how to change my cookie settings The information on this site is issued by Gemini Capital Management (Ireland) Ltd, which is registered in Ireland No. 579677. The registered address for the company is 7th Floor, Block A, One Park Place, Upper Hatch Street, Dublin 2, Ireland. For further information on our use of personal data collected and stored by the firm and its approved vendors, please see our Data Protection Statement, which can be found in the “Our Policies” section on this website.