Hello everyone! The CSUF Student Managed Investment Fund is back with an update for June. Enjoy the read!
We hope that everyone has had a productive summer so far! To all of our analysts with internships: we hope to hear about your return offers once everyone gets back. To all of our new graduates; we hope that you are all making us proud to be Titans. Titans reach higher!
Our eyes are still very much on how the US economy is doing since we still expect a slowdown. Along with that has been our attention toward the ongoing trade conflict. As negotiations evolve, we continue to be very much aware of the material effects that may eventually be passed on to the consumer if negotiations don’t come to a head in the near future. We are happy to announce that we generated 147 bps YTD returns in excess of the benchmark during the month of June!
Our equity portfolio outperformed the benchmark by 249 bps during the month of June. Much of our out performance was attributed to our overweight in consumer staples and discretionary together with our security selection. There has been ongoing trade tensions between U.S and China in the past months as well as the discrepancy between market sentiment and the Federal Reserve FOMC on rate cuts. Ultimately, the volatility has made less cyclical sectors more attractive until there is more certainty on economic growth and negotiations.
Leaders & Laggards
Paypal is our top-performing security by returning 42.3% YTD. Paypal was the exclusive payment processor for eBay. However, eBay recently demoted Paypal from being their overall processor to being one of many payment services. The change would increase competition for transaction processing. Ultimately, Paypal still has a strong presence in its industry and with its consumers, therefore, we don't see this change having a significant impact on PayPal's revenue. There haven't been any fundamental changes to the company which is why we will continue to hold our position.
Costco continues to perform well with renewal rates remaining strong at 90.7% as well as an increase in the number of cardholders up to 97.2 million from 96.3 million. Furthermore, shopping frequency increased domestically by 3.4%. The data points are indicating that Costco is still growing. Furthermore, we expect Costco to maintain health margins around 3% for 2019 and 2020 as it has been for the past few years.
CVS has been our lowest performer as it is down 12.8%. The position is faring better today than it was while it was down -16.3% last month. Much of the losses could be attributed to investors’ shaky confidence in the company to fully integrate its Aetna business. Recently, the U.S Department of Justice fully approved of CVS’ effort to complete the $68 billion dollar purchase of Aetna. Despite CVS being down, we see that they are making a recovery and we expect the Aetna merger to benefit CVS given time for the businesses to integrate.
Although showing improvement from May, our fixed income portfolio continued to underperform the benchmark, but this time by 72 bps. We believe our performance was attributed to our underweight in treasuries, securitized, and an overweight in emerging markets.
Treasury yields have fallen for a third consecutive quarter, reflecting investors’ worries of slowing global growth and conflicted thoughts on geopolitical tensions, resulting in a flight to quality. Additionally, there has been news of The Fed possibly cutting interest rates from the following week. This has increased investors’ worries leaving a bewildering impression of the economy’s condition. As the feeling of uncertainty continues to loom above, investors have continued to invest in bonds.
As of June, our leading securities are still VCIT and CMBS. Although the market has experienced temporary joy from easing political tensions, investors have continued to be bearish on the market and leaned towards bonds; resulting in our investment-grade securities, commercial mortgage-backed vehicles, and ETFs outperforming in our fixed income portfolio.