Hello Everyone! The CSUF Student Managed Investment Fund is back with an update for April and May. Enjoy the read!
We would like to congratulate all of the class of 2019 graduates and look forward to all the great things they will go on to accomplish. We would also like to thank the graduating CSUF SMIF leaders and team for their hard work and dedication. Titans reach higher!
We’ve seen many developments on the global stage in the past two months as macro economic factors took center stage. The mixed outlook on trade negotiations and economic growth heavily contributed to our portfolio returns. The SMIF portfolio rebounded from its underperformance from the last few months and has now generated a 214 bps YTD return.
Our equity portfolio underperformance relative to the benchmark, during April, could be attributed to our allocations to value securities during a time when optimism for economic growth was increasing. Fears that the ongoing trade conflicts would weigh on future economic growth had resided as signals of trade negotiation progress showed themselves.
Our equity portfolio out performance relative to the benchmark, during May, could attributed to performance by our leader securities and their resilience during a time when there was more uncertainty surrounding economic growth and trade negotiations. Going forward, we will be trimming our consumer staples and increasing our other sector weights to more closely match the benchmark.
Ecolab Leads with Lobster...International
Echo lab is the current leader in our portfolio generating returns of 37.5% YTD. Management continues to emphasize their growth strategy through acquisitions and investing in digital platforms that compliment their business. Ecolab acquired Lobster International, a end-to-end online customer training service, on February of 2019. On June 7th, Ecolab created the “The Food Safety Culture Assessment” to benefit their food retail customers by helping them measure food safety behaviors and food safety cultures as demand for fresh foods continues to increase. Fresh foods come with greater food safety risks, however, Ecolab will be able to use their newly acquired Lobster International to create informative training tools to inform their food retail customers on proper hygiene, food safety procedures, and critical processes..
Paypal Just Doesn’t Stop
Since its purchase, Paypal has generated returns of 35.9% as of June 7th 2019 and has constantly been one of our top performing leaders. Much of the recent success has come from the rapid surge (17%) in new users; which now totals to 40 million active users. The biggest contributor to the surge is the increase demand for their customer-to-customer payment service, Venmo. Furthermore, Paypal announced on June 3rd that it would be launching a new e-commerce platform as a “one-stop shop” for consumers looking to trade with one another; which would compete with Facebook Marketplace and Instagram Checkout.
Hasbro Picks Up Speed
Hasbro has announced a partnership with Netflix to turn their popular fantasy card game, “Magic: The Gathering” into an animated series for Netflix. The announcement has disrupted their stock performance; increasing it by 6.2%. Additionally, revenue for the first quarter increased by 6% as the company adjusted for exchange rates; much higher than analysts’ expectations of a decrease of 7% year over year. The firm has also decreased their operating expenses by 13% year over year with $25 million reflected from tactical management decisions.
CVS & United Healthcare are Shaken Up
Since the start of the year, the healthcare industry has been underwhelming. The underwhelming performance could be due to how investors reacted when our administration called upon legislation to address the rising cost of prescription drugs. Both the administration and top government officials want to push to pass drug price transparency laws which would require those companies to show how much it costs them to make the drug which would pressure the industry to lower their prices seeing that they can receive a lot of scrutiny for drug prices at extravagant levels. Furthermore, as elections are coming up soon, the Democratic Party has made healthcare reform one of its top issues to address and have proposed a Medicare-for-all bill.
Fixed Income Loses Its Stride
Our fixed income portfolio underperformed the benchmark my 81 bps while taking on less risk. We believe our portfolio lost some of its stride due to it being underweight in Treasuries and it having an overweight position in Emerging Markets.
Backtracking to April, we saw that trade tensions eased as the White House showed that trade talks, between the United States and China, were progressing. At that time, our overweight in Treasuries hurt us because investors had an optimistic outlook on economic growth.
Moving forward to May, we saw that the trade tensions were far from being over. Tensions, between U.S. to China, had been escalating before suddenly flowing into to Mexico leaving investors fearing a faster paced economic slowdown. This resulted in Treasuries performing well in June. However, our underweight in Treasuries contributed to the fixed income portfolio’s underperformance.
As of June, our leaders are VCIT and CMBS. Due to the recent volatility, investors have been bearish on the market and leaning towards bonds resulting in our investment grade and commercial mortgage backed securities ETFs outperforming in our fixed income portfolio.