Thought Leadership

Bristol Gate Comments on Recent Volatility

The continued spread of the coronavirus beyond China is causing chaos in the markets. The selloff has been highly correlated, indiscriminate and violent, bringing the S&P 500 from its highs to close to bear market territory in just a matter of weeks.

The VIX Index, the market’s gauge of fear, has spiked to levels not seen since the Global Financial Crisis. Bond yields have collapsed with the 10 year dropping below 0.5% and the 30 year below 1% and now the oil price has followed suit as Saudi Arabia effectively declared an all out price war with its OPEC+ partners.

This is what panic looks like. Fear and uncertainty are high. Like a soccer goalie facing a penalty shot, many investors are feeling the need to react so they can say they did something. Sometimes though, just staying the course is the best option.

Our research has demonstrated, and our results have proven that over time, higher total returns can be achieved by owning stocks with higher dividend growth. The top dividend growers have consistently outperformed the broad US market. We do not believe this has changed because of the coronavirus.

Our process is focused on identifying high dividend growth supported by sound fundamentals, not financial engineering. This leads us to companies with strong business models with enough financial flexibility to finance ample, attractive reinvestment opportunities. We believe acquiring high returning businesses that can compound capital over longer periods of time at reasonable prices is the best way to protect and grow capital.

There is no doubt that the near term earnings of many of our portfolio companies will be affected by the coronavirus – supply chains have been disrupted, travel has been cancelled, and overall demand has been reduced. But we believe this is only a temporary affect.

Unlike many of our competitors who are focused on next quarter’s earnings to value stocks, we take a longer term view of a company’s true earnings power to determine intrinsic value. As such, one time, near term events have little impact on our determination of value. Said another way, Visa recently lowered their FYQ2 revenue guidance by 2.5-3.5% mostly because of a reduction in cross border travel. Does that change the longer term opportunity represented by the fact that 80% of global payments are still not performed on card networks? We think not.

All the companies in our portfolio have secular trends such as this that will continue to drive long term opportunity despite near term challenges. Although we are never happy when our portfolio is down, we take comfort in how it has performed on a relative basis in an environment where yields have been driven to historical lows. We believe that speaks to the general fundamental strength of our investments.

In addition to the above, there are a several other points that are worth mentioning that we think are relevant during times like this:

· Our systematic, quarterly rebalancing effectively acts as a contrarian mechanism, trimming stocks that have done relatively well and reallocating that capital to stocks that are lagging.

· We own no energy stocks and are effectively net short via our positions linked to consumer spending. The fall in energy prices will act as a bonus to consumer discretionary spending and we expect many of our holdings to benefit from this.

If you are like that soccer goalie and feel the need to act, perhaps buying a little on down days makes more sense than selling. Although we don’t know when the bottom will occur, or how bad this will get, we have seen panic before and know one thing for certain – it always subsides.

Important Disclosures

There is a risk of loss inherent in any investment; past performance is not indicative of future results. Prospective and existing investors in Bristol Gate’s pooled funds or ETF funds should refer to the fund’s offering documents which outline the risk factors associated with a decision to invest. Separately managed account clients should refer to disclosure documents provided which outline risks of investing. Pursuant to SEC regulations, a description of risks associated with Bristol Gate’s strategies is also contained in Bristol Gate’s Form ADV Part 2A located at

This piece is presented for illustrative and discussion purposes only. It should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities and it does not consider unique objectives, constraints, or financial needs of the individual. Under no circumstances does this piece suggest that you should time the market in any way or make investment decisions based on the content. Investors are advised that their investments are not guaranteed, their values change frequently, and past performance may not be repeated. References to specific securities are presented to illustrate the application of our investment philosophy only, do not represent all of the securities purchased, sold or recommended for the portfolio, it should not be assumed that investments in the securities identified were or will be profitable and should not be considered recommendations by Bristol Gate Capital Partners Inc. A full list of security holdings is available upon request. For more information contact Bristol Gate Capital Partners Inc. directly. The information contained in this piece is the opinion of Bristol Gate Capital Partners Inc. and/or its employees as of the date of the piece and is subject to change without notice. Every effort has been made to ensure accuracy in this piece at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and Bristol Gate Capital Partners Inc. accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. We strongly recommend you consult with a financial advisor prior to making any investment decisions. Please refer to the Legal section of Bristol Gate’s website for additional information at

A Note About Forward-Looking Statements

This report may contain forward-looking statements including, but not limited to, statements about the Bristol Gate strategies, risks, expected performance and condition. Forward-looking statements include statements that are predictive in nature, that depend upon or refer to future events and conditions or include words such as “may”, “could”, “would”, “should”, “expect”, “anticipate”, “intend”, “plan”, “believe”, “estimate” and similar forward-looking expressions or negative versions thereof.

These forward-looking statements are subject to various risks, uncertainties and assumptions about the investment strategies, capital markets and economic factors, which could cause actual financial performance and expectations to differ materially from the anticipated performance or other expectations expressed. Economic factors include, but are not limited to, general economic, political and market factors in North America and internationally, interest and foreign exchange rates, global equity and capital markets, business competition, technological change, changes in government regulations, unexpected judicial or regulatory proceedings, and catastrophic events. Readers are cautioned not to place undue reliance on forward-looking statements and consider the above-mentioned factors and other factors carefully before making any investment decisions. All opinions contained in forward-looking statements are subject to change without notice and are provided in good faith. Forward-looking statements are not guarantees of future performance, and actual results could differ materially from those expressed or implied in any forward-looking statements. Bristol Gate Capital Partners Inc. has no specific intention of updating any forward-looking statements whether as a result of new information, future events or otherwise, except as required by securities legislation.


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