Thought Leadership

Diamonds in the Rough

Much has been made of the unprecedented market rally over the past five months. Names like Apple, Google, Amazon, and Tesla have grabbed headlines by rewarding their investors with incredible returns since the March 23 lows; however, this spectacular performance among few high flying names is the symptom of a relatively thin market recovery. The US market has been led by eight stocks with a year-to-date return of over 80%. Only 164 of the 500 companies in the S&P 500 have posted a larger return than the index itself.

There is no denying that the past decade has seen the emergence of spectacular and disruptive companies. There has been a troubling consequence of this disruption – the market has focused on and rewarded a small segment of these businesses. Tesla, now the world’s most valuable auto manufacturer despite generating a fraction of the revenue of its peers, trades at a forward price to earnings ratio of 171. Investors are paying $171 dollars for every dollar the company is projected to earn over the coming twelve months. The company is now under consideration for inclusion in the S&P 500. The separation between popularity and prudence at the top of the index has likely never been higher.

In a previous blog we highlighted that “the five most valuable companies in the S&P 500 – Facebook, Apple, Amazon, Microsoft, and Alphabet (Google) account for over 20% of the index. Even more staggering, when Netflix is included, this figure climbs to over 25% of the entire value of the index.” Comparing Bristol Gate’s equally weighted 22 stock portfolio to the S&P 500 shows the potential benefits of active strategies in the current concentrated market when searching for dividend growth and alpha.

The top 10 stocks in the S&P 500 account for nearly 30% of the index’s value and, by extension, 30% of the value of passive funds mirroring it. Bristol Gate holds only two of the largest 10 companies in the S&P 500. In total, 40% of the Bristol Gate US strategy is comprised of companies that rank outside of the top 100 largest market capitalizations. These companies have a negligible weight in the index; however, we believe that there are many diamonds in the rough that investors may benefit from by including in their portfolios.

Bristol Gate holdings range widely in market cap and a number are outside the top 150 largest companies in the S&P500. These companies comprise under half a percent of the index’s value. In Bristol Gate’s portfolio each company receives an equal weight. Bristol Gate strives to reward our investors by providing higher exposure to these diamonds in the rough that are typically underrepresented, based on their potential, by most passive investment strategies.

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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