A Strength That Has Barely Been Noticed

While much of the focus on the stock markets revolves around AI and semicon­duc­tors, new oppor­tu­ni­ties are emerging away from the spotlight. The Tareno Hawk-Eye approach becomes parti­cu­larly intere­sting when indivi­dual stocks develop relative strength despite recei­ving little atten­tion, and positive news subse­quently leads to a dispro­por­tio­na­tely strong market reaction.

Relative strength instead of market forecasts

The Hawk-Eye approach does not attempt to predict which sector will be in the market’s focus next. Rather, it focuses on where a change is already reflected in share prices.

Attrac­tive risk-reward profiles can emerge, parti­cu­larly in overlooked or unpopular market segments. However, low investor interest alone is not a buy signal. It only becomes relevant when indivi­dual stocks begin to decouple from the weak market environ­ment and develop a construc­tive price pattern.

Our quanti­ta­tive models scan thousands of stocks world­wide daily for precisely these kinds of signals. The goal is to identify confirmed market changes early and imple­ment them in a disci­plined manner.

Merck & Co.: Relative Strength Becomes Apparent

A promi­nent example of this in August was Merck & Co. The stock gained about 14%, while the health­care sector rose by only 3%. Parti­cu­larly striking was the stock’s incre­a­sing decou­pling from the broader sector, after it had previously gone largely unnoticed for a long time.

Three factors converged in support of the Hawk-Eye approach:

Merck-Co-Hawk-Eye-EN-1164x840

Little Atten­tion
The pharmaceu­tical and biotech­no­logy sectors received signi­fi­cantly less atten­tion than AI and semicon­duc­tors. It is precisely in such market segments that oppor­tu­ni­ties can arise when indivi­dual compa­nies demon­strate new relative strengths.

Construc­tive pricing pattern
Merck & Co. began to incre­a­singly distance itself from the health­care sector. For our models, this was an important signal of changing market behavior.

Confir­ma­tion from the Market Reaction
On August 19, Merck & Co. and Moderna reported positive Phase 3 data for their perso­na­lized mRNA cancer vaccine in combi­na­tion with Keytruda. Merck & Co. stock responded with a price jump of about 12%. What is crucial to our approach is not only the good news itself, but also the excep­tio­nally strong market reaction to it.

When the market re-evaluates new infor­ma­tion

Merck & Co. exempli­fies how the Hawk-Eye approach works. Our models do not search for the perfect bottom and do not adjust the portfolio to be more aggres­sive or defen­sive based on macroe­co­nomic forecasts.

What matters is where relative strength emerges and how the market reacts to new infor­ma­tion. Thus, the portfo­lio’s orien­ta­tion changes with the market, not with a forecast of the market.

Whether the incre­a­sing strength of defen­sive market segments is already an indica­tion of a more challen­ging market environ­ment remains to be seen. For Hawk-Eye, it’s not the predic­tion that counts, but the confirmed change.

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Disclaimer

This document has been prepared for marke­ting and infor­ma­tional purposes and does not consti­tute an offer or a solici­ta­tion to subscribe to, buy, or sell shares of this invest­ment fund. It does not consti­tute invest­ment advice. Only the current fund documents (in parti­cular, the prospectus and KID) are exclu­si­vely autho­ri­ta­tive. Past perfor­mance is not a reliable indicator of future results.

Images: Marijke Vosmeer, Luzia Hunziker, Jürg Kaufmann, Istock, Unsplash / Graphics: Tareno AG / Bloom­berg