Thomas Rowe Price, Jr. was 40 years old when he bolted from his position as the head of investment for MacKubin, Legg and Co. in 1937. That year, he and three of his Baltimore buddies launched T. Rowe Price and Associates to trade stocks for investors who appreciated the boys’ asset-based fee system. T. Rowe personally managed his eponymous firm until he formally retired in 1971.
Price is best known for defining and promoting the concept of growth stocks
Michael Dell, on the other hand, was a cool 19 years old when he founded his company in 1984. Also a big fan of his own name, Dell became for a time the world’s biggest PC maker by computers sold. Company shares peaked in 2000 during the dot-com boom, but the business was struggling by the end of the decade as consumers moved to mobile devices and cloud computing.
Dell started an informal business selling upgrade kits for personal computers as a UT freshman pre-med student
As self-admiring company founders go, both gents achieved remarkable success. But unlike the well-mannered Mr. Price, who sold all his company shares to the public in 1966, Mr. Dell bought all of his company’s shares from the public in 2013, including 30 million or so held by T. Rowe funds.
A judge ruled that Dell stock was worth $6 billion more than Michael Dell paid to take the company private
Ironically, T. Rowe Price, despite its strident outspoken opposition to the underpriced deal, had mistakenly voted in favor of it, disqualifying the firm from receiving about $190 million for its position. It’s an awkward twist of fate, and one that likely has “the father of growth investing” doing same in his grave.
What the markets have been doing…
So, welcome to the beginning-of-summer markets, where slow trading and lousy economic news translates to higher prices. Like the previous month, the smaller-cap indexes and the technology-heavy NASDAQ outperformed the large-cap brethren, though all posted nice gains for the period. In fact, the S&P 500 closed at its highest level since early November.
The otherwise contented crowd was resultingly shocked – shocked! – on Friday when the Labor Department’s official tally of job gains showed the smallest increase in monthly payrolls since November 2010. While the surprising report was definitive evidence of slowing job growth, languid traders chalked it up to unsustainable strength in the previous months.
|Index||Friday’s Close||Two-Week Point Change||Year-to-Date Change|
Bond traders, on the other hand, took the crummy economic news seriously. After wandering around a bit earlier in the period, Treasury yields plunged following the jobs report, recording their biggest daily drop since January. The investment-grade space remained focused on the new issuance calendar, while high yields edged higher.
|Fixed Income||Yield||Two-Week Change|
|Bloomberg Corporate Bond Index||3.03%||-(0.12)%|
|30-Year Municipal Bonds||2.47%||+0.01%|
Yes, there’s an economic surprise indicator, and yes, it just surprised to the upside.
(Wells Fargo Securities)
Quote of the Week…
“It makes sense to assume that most democratic societies eventually will reach the point where the majority views the top tier as a cash cow available for unlimited milking.”
– Howard Marks, Co-Chairman, Oaktree Capital Management
Number of the Week…
4,000 miles: The approximate distance of a new fiber optic cable that Facebook, Microsoft, and Telefónica have teamed up to build under the Atlantic Ocean, the latest evidence that the biggest U.S. tech companies are seeking more control over the Internet’s plumbing.
What Fund Architects is doing…
Since our strategy for the Fund Architect Portfolios is to take positions the best investment opportunities we can find, we can’t be afraid to “blow out” of a position, as they say. To that end, we cashed out of our recent purchases in Global Infrastructure and Global Real Estate. Neither sector treated us too badly, though they did lag the broader market for May, but we see the best opportunity now in U.S. stocks. Accordingly, we reallocated the cash to large- and mid-cap ETFs. Both positions were up nicely the first week of June.
We’ve been busy on the fixed income side as well. In the bond rotation strategy, we swapped out our successful positons in Emerging Markets Sovereign Debt and Senior Bank Loans, reallocating funds to the U.S. high yield market through the SPDR Barclays High Yield Bond ETF and to convertible bonds through the SPDR Barclays Convertible Securities ETF. Both positions are up around 80 basis points from purchase, a nice lift for conservative accounts.
We recognize there’s a fair amount of market frustration on the part of advisers and investors these days. The S&P 500 has essentially climbed back to where it was at the end of 2014, and the ride has been more than a little bumpy. So we understand a degree of uncertainty about the market’s near-term future. Fact is, the short term is always unknowable. But the long term is inevitable. The Portfolios are fully invested right now in the sectors we think offer the best opportunity for success. We’re looking forward to a good ride.
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.