The CSUF SMIF Portfolio Holds Steady

News

 

Happy October everyone! Here's an update on CSUF's Student Managed Investment Fund.

 

Starting next week, we will begin preparing for the RFP competition which has been confirmed to take place on November 30. We will be competing against other universities in Southern California, including 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.

 

For those of you interested in joining SMIF next semester, Titan Online states that classes will take place on Mondays and Fridays. We have requested to change our meeting times to Tuesdays and Thursdays from 10 am to 11:15 am, so please plan your class schedules accordingly.

 

Lastly, we will be marketing for SMIF as well as Titan Capital Management (TCM, formerly known as ASAP) over the next few weeks, so be on the look out for us! 

 

Portfolio Update (September 4 - October 3)

 

Since our last update in early September, our overall portfolio has held its outperformance versus the benchmark by 250 basis points (+2.50%). Please refer to the chart below for our performance throughout the period.

 

 

Equity

 

Our equity portfolio has performed well throughout this year. However, this month, we saw massive drops in several of our holdings, including MPWR, PYPL, AMAT, and TSN. On the other hand, we have had several positive performers providing a cushion to the losses we've experienced. Please see the chart below for more information.

 

 

Mergers & Acquisitions: CVS and Disney

 

CVS has continued the process of buying Aetna for $69 billion. With this deal, one of the largest drugstore companies will merge with one of the largest health insurance companies. A merger of this scale requires both companies to gain approval from U.S. antitrust authorities. Aetna recently sold its medicare drug business to WellCare Health Plans to avoid antitrust issues that may arise in this merger. Just this week, news came out that the merger has been approved, so SMIF will continue to hold CVS in the portfolio and evaluate the various conditions concerning the merge.

 

Recently, Disney lost its battle to Comcast over the acquisition of Sky, Europe’s largest TV-pay group. However, the price tag on Sky may have been overvalued; therefore, Disney may have dodged a bullet. In addition, its acquisition of Fox has given the company’s 39% stake in Sky, but will be sold to help reduce approximately $15 billion of debt incurred from Fox’s acquisition.

 

With the estimated acquisition completion in 2019, Disney is also planning to directly reach consumers through building a streaming service costing sub-$10 monthly. The subscription cost is to compete against Netflix. However, there is a possibility of Disney gaining Hulu from Comcast in the near future due to Comcast attempt to cut down debt after Sky acquisition. The ball seems to be rolling in Disney’s advantage and can be explained by the recent shares surge in the past month.

 

Intuitive Surgical

 

Intuitive Surgical has been one of our top performers with a HPR over 30%. We purchased 3 shares in Mar. 2018, and they have yet to disappoint. Although they have consistently outperformed, there are minimal signs of the robotic surgical manufacturer slowing down. ISRG’s da Vinci robotic surgical system allows complex operations with a minimally invasive approach. The aging population in the United States, Asia, and Europe has been a major contributor to their performance. As such, the amount of surgeries performed with ISRG's system has been growing tremendously.

 

Dropping Tyson Foods

Our Tyson Foods holding is one of our underperformers in our portfolio. A record in beef, pork, and chicken production has pushed the prices down, which impacts Tyson’s business segments. In addition, trade tensions with China impacted the company’s international expansion as China was an important market for the market. In more recent news, Tyson’s CEO has stepped down for “personal” reasons. Brandon Remedios, equity analyst for SMIF, presented a sell report for Tyson last week. He claims that there is no growth catalyst in the near term future for the company and SMIF can find better opportunities than Tyson.

 

Waiting for Fedex to Deliver Results

 

Fedex recently had earning and disappointed investors with below wall street expectation results. Tariffs instituted by President Trump have impacted less than 10% of Fedex’s revenue. Earnings were also affected by increasing wages the company implemented due to tax reform. Fedex accelerated $200 million annual pay increases, which decreased profits by 48 cents per share. However, Fedex remains a hold in our portfolio because the company raised full year guidance. The next two earnings are crucial for Fedex as the holiday season gets closer. SMIF is waiting for Fedex to deliver results in the next two earnings reports.  

 

Monolithic Losing Power:

 

From being one of the top performers in Aug. 2018, MPWR has dropped by over 20% within one month. During Mid-September, multiple analysts have downgraded their rating of MPWR from a strong buy to outperform/hold, because they are beginning to see cyclicality in the semiconductor industry. MPWR later has a conference with Deutsche Bank and confirmed the cyclical dynamics due to slow growth in broad market. However, management believes they can outperform compared to their competitors during “significant” downturns.

 

Fixed Income:
 

Our lowest performer for the month of September was our long-term treasury ETF, IEF -1.8%, and the top performer being our high yield ETF, HYG +0.2%.

 

 

 

The Path to Normalization is Clear... for Now

 

The Fed raised short-term interest rates in late September by another twenty-five basis points and announced that they fully expect to raise rates once more this year and through 2019 (an additional percentage point) to keep the growing economy in check. The Fed’s decision marks the first time the Fed has raised the federal funds rate past 2% since 2008. The SMIF fixed income team believes that the Fed’s strategy to gradually return rates to the norm will benefit the growing economy in the long-run, and reduce the risk of a yield curve inversion in the short-run. One of our main concerns is how much higher the committee believes they need to raise rates to keep inflation within their 2% target and the economy from overheating. Thus, our fixed income and economics team will continue to monitor economic indicators that can tell us the health of the economy and hint how the Fed moves forward.

 

IEF: Concern with Our Safety Net?

 

With the release of strong economic data over this month, with the most recent statistic showing unemployment at its lowest level since 1969, prices on US treasuries have fallen as more bond investors shift their focus from the safety net of treasuries to corporate bonds. This can be illustrated from the narrowing US investment grade corporate spreads since July (roughly twenty basis points). This and the high interest rate risk on our long-term treasury ETF likely explains why IEF was our worst performer. Actions going forward may lead us to adjust from our long-term to an intermediate, or even short-term treasury ETF.


 

Disclaimer

 

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.

 

 

 

 

 

 

 

 

 

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