Stocks Weigh Down Portfolio Returns, Bonds Hold Steady

February 12, 2019

 

 

News

 

Hello everyone! The CSUF Student Managed Investment Fund is back with an update for the new year. Enjoy the read!

 

Back in late November, CSUF SMIF participated in a Request for Proposal (RFP) competition against five other schools, including Chapman, UCI, Cal Poly Pomona, CSU Long Beach, and UCR. We are proud to announce that CSUF won the competition and will be managing the largest portfolio for 2019. 

 

CSUF SMIF is now offered as FIN 341, a single-unit course that can be taken up to three times for elective credits. We welcome anyone, from CSUF finance majors to non-business majors, to be a part of our organization and learn about the investment realm of finance. For those of you interested in joining SMIF, classes/meetings take place on Tuesdays or Thursdays from 10:00 am to 11:15 am. These will be two separate sections, so please arrange your schedules accordingly.

 

Portfolio Performance (12/28/2018 to 2/8/2019)

 

With the overall market performing well, the CSUF SMIF Portfolio underperformed against the benchmark by 223 bps since its inception on December 28, 2019. This performance was largely due to our stocks, as the benchmark beat the equity portfolio by 281 bps.

 

 

 

Equity

One month into the new year, it appears investors have forgotten about the woes of the stock market during the final quarter of 2018. In fact, the S&P 500 recorded its strongest January gains since the 1980s which can be partially attributed to the plunge in December. The top sectors thus far in the new year include Industrials, Energy, Communication Services, and Real Estate - all of which have underweight allocations versus the benchmark in our portfolio. Overall, growth stocks outperformed value, evidenced by the performance of VONG and IWD 

 

 

Leaders

ITA Takes Flight with Boeing and Lockheed Martin

ITA has been our top performer year to date mostly due to a surge in Boeing’s (BA) stock price. BA is the ETF's largest holding at 12.36% During its Q4 earnings announcement, BA revealed a record-breaking annual top line of over $100 billion and $17.85 earnings per share. In addition, the company increased its 2019 earnings projection to around $20 per share. However, because we are invested in a fund, we also have the benefit of reaping gains from BA's main competitor, Lockheed Martin (LMT). LMT recently received its largest order in history for its F-35 jet fighter, triggering a strong performance to start the year. 

 

Salesforce Lives in the Cloud

Strong Q4 results and forward guidance lifted Salesforce’s (CRM) price after the December sell-offs. Even though its gross margins remained low versus its rivals, Oracle (ORCL) and Adobe (ADBE), CRM has continued to dominate due to its market position. In an effort to continue growth, CRM is seeking to more than double its workforce in Ireland from to 1,000 to 2,500 in the next five years. CRM remains a strong hold within our portfolio this year.

 

Hasbro Bounces Back from Weak Earnings

Hasbro (HAS) was our third best performer during the holding period with an HPR of 11.8%. HAS and Scientific Games extended their licensing agreement through 2025. The agreement includes Monopoly and other brands to be licensed in gambling and table games. Additionally, HAS has benefited from Transformers toy sales due to the recent Bumblebee movie release in December. Despite weak earnings and a temporary sell off, HAS has bounced back nicely.

 

Laggards

Has McCormick Lost its Favor?

For its Q4 earnings, McCormick & Company (MKC) reported lackluster numbers with lower sales guidance. They reported EPS of $1.67, missing Wall Street expectations by $-0.03, and revenue of $1.5 billion, missing expectations by $50 million. They also lowered their sales growth outlook for 2019 from 14% to 12%. One of the biggest factors that resulted in the earnings miss was the negative impact of trade inventory reduction from retailers in the Americas. These unsatisfactory numbers have resulted in a loss of 10.3%, making MKC our worst performer during the holding period. Despite a weak Q4, MKC plans on investing in modernizing their technology systems to better manage risk, simplify work, and enable growth.

 

Fixed Income

 

Our fixed income portfolio has held steady in 2019, with the Bloomberg Barclays Aggregate Bond Index narrowly outperforming by 3 bps. Our strongest performer in January was our investment grade corporate fund, VCIT, which was mainly due to higher market confidence over the holding period. As such, our Treasury ETF lagged behind as investors gravitated towards higher yielding investments. 

 

In January, the Fed announced that they would temporarily pause their tightening efforts. Jerome Powell stated that the central bank is inclined to be patient at this time and will wait for further economic indicators prior to hiking rates again. From a macro perspective, several indicators signal a health economy. The unemployment rate remains low at 4.0% despite 304,000 added in January, and wage growth saw a marginal increase, though likely due to inflation. Most economists are still forecasting positive GDP growth, albeit at a lower rate. In addition, housing starts and new home sales went up in the final month of 2018. Considering the numerous signs of a healthy market, the SMIF Fixed Income team maintains a positive economic outlook for 2019.

 

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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