And put it in your pocket
You’ll remember Tom Marsico. He earned a good degree of fame for his stock-picking prowess at Janus Capital back in the 90s. Fame was so bright, in fact, he bolted from Cherry Creek in 1997 to launch his own shop, Marsico Capital, in downtown Denver. Just three years later – at the height of the technology boom – the former manager of the Janus Twenty Fund sold his nascent business to Bank of America for more than $1 billion. Nice trade Tom.
Never let it fade away
In the years following, assets under management swelled to $100 billion as big-name product managers hired the firm to sub-advise their growth-style investment options. Seven years later – right in front of the financial crisis – Mr. Marsico bought his business back, financing the deal with $2.5 billion in debt and $150 million in cash. Aggressive trade Tom.
Catch a falling star and put it in your pocket
But as global equity markets sold off, and the firm’s growth strategy underperformed, investors began to withdraw cash. A lot of it. With most Marsico-managed funds lagging badly over the past several years – even as the firm charged above-average fees – AUM faded to less than $4 billion. In an effort to bail out the firm, Mr. Marsico himself has in recent months purchased “substantially all” of his company’s outstanding debt. That’s a tough trade Tom.
Save it for a rainy day
Fact is, shifting investor preferences and lackluster performance by former star managers are putting a hard squeeze on a lot of investment firms that try to beat the market. That’s why the great Tom Marsico is sitting on nearly half a billion dollars of what could be junk debt. That’s a distressed trade for any stock picker.
What the markets have been doing…
Helped by continued monetary stimulus and strength in the prices of oil and other commodities, stocks of all stripe posted gains for the period. Share buybacks at Microsoft and Target provided a bit of a boost, as did better-than-expected earnings from FedEx. Interestingly enough, though, it was the small-cap Russell 2000 Index that performed best, establishing a new high for the year along the way.
The Fed’s decision not to raise interest rates seemed to be the primary driver of market sentiment, although the non-move had disparate effects on individual sectors. Financial services stocks lagged, but utilities and real estate investment trusts with their high dividend yields saw gains Materials and energy stocks also got a boost as the dollar declined after the Fed meeting. Oil prices also rose on news of healthy demand and inventory drawdowns in the U.S.
|Index||Friday’s Close||Two-Week Point Change||Year-to-Date Change|
Unsurprisingly, the Fed’s decision caused Treasury yields to fall, mostly across the longer end of the yield curve. The investment-grade space benefited from strong interest in a highly anticipated pharmaceutical industry deal, while high-yields traded well following the Fed announcement. Municipal yields declined, though the asset class underperformed Treasuries.
|Fixed Income||Yield||Two-Week Yield Change|
|30-Year Municipal Bonds||2.27%||+0.01%|
Diversifying no more?…
3.2 trillion dollars in bonds would love to know
Quote of the Week…
“Cross-selling is short-hand for deepening relationships.”
John Stump, Wells Fargo CEO, testifying before Senate Banking Committee
Number of the Week…
Annualized gains over the last 10 years of Harvard University’s endowment, making it the third-worst performer in the Ivy League.
What Fund Architects has been doing…
Here we are at the end of September, and we’re fairly pleased with the Portfolios’ positioning. The Global Tech ETF (IXN) we added to the equity rotation at the first of the month has been a winner, picking up close to 2% since we purchased it. Apple, of course, has been the big contributor.
As we look toward potential changes for October, the most compelling sector we’re following is…U.S. Treasuries. Again. Indeed, unless something extraordinary occurs over the last few days of this month, we’ll likely be repositioning assets from large-cap equities back into the Treasury position that treated the Portfolios so well earlier in the year.
While such a trade might seem a bit counterintuitive at first blush, remember this: There’s still plenty of room to run for Treasuries. Compared to the trillions of dollars of sovereign debt with negative rates, a 10-year U.S. note at 1.6% or so is still relatively attractive. Even a small drop in yield translates to a fairly large gain in price.
And let’s not forget that bonds are still a decent hedge against equity volatility. The notion of a Treasury ETF alongside our global technology position sounds pretty comforting in front of what’s historically a wild month of October. Stay tuned.
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.