Remember Yahoo! Inc.? If not, here’s a clue: The struggling company with the exclamation point in its corporate name was an Internet search engine pioneer. It’s true…you can look it up on Google.

In 1994, “Jerry and David’s Guide to the World Wide Web” was renamed “Yahoo!”

Shares of Yahoo have fallen 22% over the past year as profitability at its core business has cratered. The company reported an operating loss of $127.5 million in 2015, down from a profit of $218.7 million the previous year. CEO Marissa Mayer has struggled to sharpen the company’s focus, and Yahoo has waffled on plans to spin off its lucrative stake in Alibaba.

Jerry and David claim that “Yahoo” is a backronym for “Yet Another Hierarchically Organized Oracle”

Last week, an activist hedge fund called Starboard Value said it intends to replace Ms. Mayer and Yahoo’s entire board with its own slate of directors. Playing a role in the outcome will be co-founder David, who still owns a 7.5% stake. The next 20 holders, including Starboard, control about 38% of what is now a $29 billion company.

The slang meaning of “yahoo” derives from the Yahoo race of fictional beings from Jonathan Swift’s Gulliver’s Travels

At Yahoo’s headquarters in Sunnyvale, layoffs and uncertainty about the company’s future are said to be crushing morale, with many employees describing current projects as being on “maintenance mode.” Worse, some of the sniveling sort started complaining when they discovered a casualty of new austerity measures: No more sushi in the campus cafeteria.

In Swift’s story, the Yahoos are primitive creatures obsessed with pretty stones they find by digging in mud

You can look it up on Google.

What the markets have been doing…

The markets slid into last period’s holiday shortened week, ending a streak of five consecutive weekly gains. As has been the case all year, trading was all over the board. Overall, small-cap stocks lagged large-caps and the technology sector fell more than the rest. Not surprisingly, the NASDAQ is firmly in negative territory for the year. The Dow, for its part, is still fractionally ahead for 2016 though the S&P 500 Index is slightly back in the red.

The recent rally in crude oil and other commodities took a breather after data showed U.S. oil stockpiles reaching a record level. On the economic front, chatter from the Fed suggested that a rate hike is possible at either of its next two policy meetings, but economic data painted a mixed picture. Sales of existing homes dropped sharply in February, while new home sales rose 2%. Durable goods orders fell 2.8% in February after a strong January increase, which only raised concerns that the January reading was an outlier instead of an indication of a new trend.

Index Friday’s Close Two-Week Point Change Year-to-Date Change
DJIA 17515.73 +302.42 +0.52%
S&P 500 2035.94 +13.75 -(0.39)%
NASDAQ 4773.50 +25.03 -(4.67)%

The holiday shortened week was painfully slow for U.S. Government market, with volumes running less than half of normal. Very little explained a mid-week run-up other than the fall in crude oil. High yield corporate bonds held up surprisingly well with the fall in commodity prices, while investment-grade corporates digested a chunk of large new issues s. Municipal bonds closed the period nearly unchanged.

Fixed Income Yield Two-Week Change
2-Year Treasury 0.87% -(0.09)%
10-Year Treasury 1.90% -(0.06)%
30-Year Treasury 2.67% -(0.05)%
Bloomberg Corporate Bond Index 3.33% -(0.20)%
30-Year Municipal Bonds 2.73% -(0.07)%

I’ll take hedge fund nightmares for a hundred Alex…

Bill Ackman’s Pershing Square fund is down $750 million so far in paper losses on Valeant Pharmaceuticals

boardtotears

(Thanks to Tom Florence and Blaine Rollins at 361 Capital)

Quote of the Week…

“Anyone who tells you earnings growth assures stock gains shouldn’t be investing their own money.”
–  Josh Brown, New York City-based financial advisor and CEO of Ritholtz Wealth Management

Number of the Week…

800,000: The number of barrels of oil a day unaccounted for in 2015 by the International Energy Agency Where these barrels ended up, or if they even existed, is key to an oil market that remains under pressure from the glut in crude.

What Fund Architects is doing…

Things were pretty quiet for the Fund Architect Portfolio this period. In fact, there were no trades or adjustments to any of the models. We’re still taking a conservative approach, with about 35% of assets in cash and good-sized positions in Treasuries. It’s probably worth noting here that both cash and the S&P have returned about zero percent in 2016. Our allocation, of course, has done so with a lot less risk.

That said, we expect with some certainty to be putting our outsized cash position to work in the next few days. Treasuries, both our 20-plus year maturities (up about seven percent this year) and the 10-20 year position we hold in the more conservative accounts (up about five percent) still look solid, so we’ll likely hold those positions for a while longer. Beyond that, global utilities, consumer staples, and telecom look better than cash at the moment. It’s likely we’ll buy into one of those sectors by week end from available cash.

It also might be worth noting our thoughts on the energy sector right now. We’re seeing lots of activity there, of course, and the sector has indeed come back quite a bit over the last few weeks. By our lights, however, energy is the lowest ranked sector and unattractive from a risk perspective.

On the fixed income side, Emerging Markets Sovereign debt has become our highest ranked position. With Treasuries, the two sectors are the only ones ranking higher than cash. We would expect to be moving some of the Portfolios’ cash to EM Sovereign very soon.

As difficult as it’s been to be relatively quiet through these volatile markets, our patience is paying dividends. The Fund Architect Portfolios have handily outperformed their categories over the last year, and done so with less risk versus their peers. We’ll say it again: How far you go up depends a lot on how far you don’t go down.


The views in this commentary are those of Fund Architects. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this commentary, will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Moreover, you should not assume that any discussion or information provided here serves as the receipt of, or as a substitute for, personalized investment advice from Fund Architects or any other investment professional. The information contained within this commentary should not be the sole determining factor for making investment decisions. To the extent that you have any questions regarding the applicability of any specific issue discussed to your individual situation, you are encouraged to consult with Fund Architects. Information pertaining to Fund Architects advisory operations, services, and fees is set forth in Fund Architect current disclosure statement, a copy of which is available upon request. Fund Architects, LLC is an SEC Registered Investment Advisory Firm.

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