Back to School!
Welcome back to school Titans! Here's an update on CSUF's Student Managed Investment Fund.
The SMIF Leadership Team would like start off by congratulating our new members who went through our application process throughout the Summer. We understand that it was an inconvenience to all, but we have high expectations for our analysts, so we wanted to do some initial screening prior to admission. That being said, we believe that everyone in SMIF this semester is capable of doing great things for our organization. Because of this, our Directors, Jake Salvat and Nolan Thompson, are excited to work with you all this semester.
This upcoming week, we plan on going over the economy to devise an economic outlook for our portfolio. We will need to analyze the economy to develop our strategies for our portfolio this year.
As mentioned in our last update, the RFP competition has been confirmed to take place on November 30. We will be competing against UC Irvine, Chapman University, Cal Poly Pomona, Cal State Long Beach, and UC Riverside. For those interested in attending, please mark this date on your calendar.
Since we have limited space left for this Fall semester, admission will be on a first-come-first-serve basis. We are anticipating to double our available roster space for Spring 2018, so if we cannot grant you a position this semester, we encourage you to stand in on our meetings and follow along with what we do this semester. In addition, we suggest maintaining communication with our SMIF Leadership team to stay informed.
Lastly, we will be marketing for SMIF as well as Titan Capital Management (TCM, formerly known as ASAP) throughout the semester, so be on the look out for us! If you would like to participate in our marketing campaign, please email Mason Wong to get involved.
Portfolio Update (August 25 - September 2)
Since our last update in late July, our overall portfolio has outperformed the benchmark by 250 basis points (+2.50%). Please refer to the chart below for our performance throughout the period.
On September 2, 2018, CSUF SMIF proposed to swap iShares iBoxx $ High Yid Corp Bond (HYG) for Artisan High Income Investor (ARTFX). We believe that active management is a critical attribute to a successful fund and with an information ratio of 0.92, we are confident that ARTFX’s management team is strong. In addition, our bond team wants to reduce the portfolio’s exposure to interest rate risk due to expectations of faster rate hikes. The induction of ARTFX would bring our duration down by 12 bps. For these reasons above, we think that ARTFX will be a better alternative to our portfolio versus HYG.
Please see the portfolios below with the before and after ARTFX scenarios.
The leaders in our equity portfolio include: CVS +13.9%, MPWR +12.8%, ISRG +5.3%, CRM +3.3%, and ABBV +3.0%. Our laggards include: AMAT -5.8%, STZ -3.0%, and HAS -2.6%. Please refer to the chart below to see how our other securities have performed.
Josiah Sayeth, CVS Giveth
On July 29, 2018, CSUF SMIF purchased 10 shares of CVS Health Corporation (CVS) at $66.49 per share. With CVS in our portfolio, we have increased our exposure in the Healthcare sector. Since we are in the late stages of this economic cycle, we are confident that the Healthcare sector will be a bulwark for our portfolio. In the week after buying CVS, the company’s stock actually dipped as low as $63.78; however, after August 2, CVS’s stock has appreciated to $75.24 after beating earnings expectations. Our analyst, Josiah Radford, set a price target for CVS at $88.26. We remain bullish on CVS going forward with the recent partnership with Anthem and the anticipated acquisition of Aetna.
Drugs Aren't So Bad... For Abbvie
Since our last update, AbbVie (ABBV) has added Elagolix to its pipeline after receiving FDA approval in late July. Elagolix is the first FDA-approved oral treatment for the management of moderate to severe pain associated with endometriosis in over a decade. Endometriosis is a painful condition that consists of buildups of tissue that grow in the pelvic area and affects around 10% of women aged 15 to 44. There is currently no cure for endometriosis, but treatments are available for the symptoms and the problems it causes.
In addition to Elagolix’s success, ABBV has also obtained FDA approval for its blockbuster drug, Imbruvica, to be used in combination with Rituxan to treat patients with Waldenström's macroglobulinemia (WM) after positive phase 3 results from the study iNNOVATE. WM, also known as lymphoplasmacytic lymphoma, is a rare type of cancer that begins in the white blood cells. Bone marrow produces too many abnormal white blood cells that crowd out healthy blood cells which then produces a protein that accumulates in the blood, impairing circulation and causing complications. Since there are not very many treatment options for WM, this news will bode well for ABBV and Imbruvica’s market potential.
Playtime Has Begun
Hasbro (HAS) had a great recovery from the Toys “R” Us bankruptcy news. After the news brushed off, Hasbro’s latest earnings indicated that the company is successfully transitioning to other retailers to sell their products. The company will benefit from Marvel’s Deadpool 2 and Disney’s Han Solo movie. The next two quarters are important for Hasbro because of the holiday season. With no competition from Mattel, Hasbro is in a great position to dominate the holiday season.
Monolithic Power Systems Charges Forward
Monolithic Power Systems (MPWR) provides small, highly energy efficient, easy-to-use power solutions for systems found in industrial applications, telecom infrastructures, cloud computing, automotive, and consumer applications.
MPWR’s share price has been consistently growing after beating earnings the past three consecutive quarters. Its bottom line has expanded faster than its top line due to effectively controlling costs. Top-line growth has experienced several rising trends like the Internet of Things (IoT) and artificial intelligence (AI); as a result, the overall Technology sector and Semiconductor industry, including NVIDIA Corporation (NVDA) and Advanced Micro Devices, Inc. (AMD), have performed very well this year. With emerging tech trends creating new consumer demand, the Semiconductor industry and MPWR look very promising going forward.
Will Fedex Deliver?
Fedex (FDX) has been impacted by the news of Amazon starting their own shipping service called Amazon Delivery Service Partner. It allows entrepreneurs to have their own delivery network with Amazon (AMZN) with a starting investment of $10,000. This service is still new; it’s important to see how this will impact Fedex. This new Amazon service is only for last mile delivery; however, Fedex has more diversified services in the logistics and shipping industry. E-commerce has seen strong growth due to a strong economy. We are keeping an eye on the next two quarters because these quarters make the most revenue for Fedex due to the holiday season.
Salesforce.com (CRM) has been one of the tech sector's best performers this year at +46.23% price appreciation. As the Software-As-A-Service (Saas) market continues to grow, CRM is seeing a direct impact in its top line, leading to appreciation in its stock price. As of market close on Wednesday, 8/31, CRM's share price sits at $152.68. As stated in our last update, since this price exceeds our initial price target $147.75, we will reevaluate our position to see if we should continue holding this security. With the semester start, we expect to be much more efficient in our analysis.
The Great Wall of China
In our last update, we stated that we would look into Tyson Foods (TSN) and Applied Materials (AMAT) due to their poor performances this year. With school back in session, we plan to take action and analyze the outlook of the Meat Products and Semiconductors industries to reevaluate our positions in these two securities.
Since inducting TSN into our portfolio, the stock price has been on a downward trend. We attribute the stock's poor performance to the recent trade war proposals, including 25% Chinese tariffs on meat and poultry, which directly affects the business of TSN.
Another security that has been affected by the trade war is Applied Materials. AMAT gets a considerable amount of its bottom line from China and has plans to invest $615 million to construct a facility within its borders.
Overall, our equity portfolio performed very well throughout this period. We are excited to see what our Equity leaders - Nolan Thompson, Josiah Radford, Brandon Remedios, and Anthony Squirek - have planned on this side of our portfolio.
Our fixed-income portfolio has been strong since our last update on July 24. Our top performer was IEF +0.8% and our bottom performer was PFOAX -0.3%. Performance of our other Bond ETFs are indicated in the chart below.
U.S. government bond prices were negatively impacted on Monday, August 27, due to a bilateral trade agreement between the U.S. and Mexico that further raised demand for riskier assets, such as stocks. Bond prices also fell following investor concerns about Trump’s comments having the potential to alter the path of monetary policy.
Despite President Trump’s comments displaying his displeasure with the Fed’s recent rate increases, Chairman Powell continues to embrace gradual rate increases to stabilize the rapid growing economy and normalize interest rates. Following the Jackson Hole conference, two major risks were outlined by the Fed: (1) concerns of “moving too fast and needlessly shortening the expansion versus (2) moving too slowly and risking a destabilizing overheating economy.” Recent minutes have shown that the Fed is ready to raise the short-term benchmark at their Sep 25-26 meeting. Powell stated that he doesn’t predict a sharp rise in inflation above the Fed’s 2% target based on recent economic data or an elevated risk of the economy overheating.
Default rates on junk bonds are expected to remain low throughout the rest of 2018 and into 2019 with continuing economic expansion, but will increase as interest rates rise and economic growth slows.
Information and opinions contained in this article have been obtained or derived from sources believed to be reliable, but no guarantees can be made regarding accuracy of information provided by the original sources. All opinions expressed are subject to change without notice. This article is not tailored to the investment needs of any specific person and is provided for informational purposes only.