Q3 Update


Hello everyone! The CSUF Student Managed Investment Fund is back with an update for the 3rd Quarter!

The semester is now in full swing with our teams working hard to understand the ongoing market environment and look for ways to improve both our portfolios. The team has also been on-boarding our new team leads and preparing them to start working towards the RFP.


Over the last several months, the US has been through a series of market shakeouts. In preparation for the slowing economy and to shelter ourselves from the fallout of negative data and news, we continued to focus on defensive sectors in order to beat the benchmark. Taking a look at the equity portion of our portfolio, we can identify our overweight industries such as in Consumer Staples. We can also identify our underweight industries such as in Financials, Industrials, and Information Technology.

Our Equity Portfolio has outperformed the benchmark by 5.88% YTD at the quarter's end. As US incomes rose 0.4% in August, our Consumer Staples felt the benefit; contributing to our overall positive performance. Our strategy to stay more defensive matched that market's sentiment. On the other hand, the opioid crisis and price regulation fears weakened performance in UnitedHealth Group and CVS.

However, consumer spending was disappointing, Given the robust retail sales data last month, economists expected a larger increase in consumption. This suggests that U.S. consumers have either, become more cautious or are saving more before the holiday season. We think that our current holdings should position us nicely, going into the 4th Quarter.


Dollar General Corp.

DG has an HPR of +50.0% YTD. In an industry now dominated by e-commerce stores and online business, it’s much harder to stay relevant. Dollar General has done a remarkable job focusing on their customers; carving a niche out for themselves against competitors like Dollar Tree. In an effort to continue to grow sales, Dollar General is beginning to focus on consumable and non-consumable categories as well as “better-for-you” products at more affordable prices than competitors. Additionally, they plan on rolling out a loyalty and coupon program to enter the post-sales market - called the DG Go App.

Hasbro Inc.

HAS has an HPR of +46.7% YTD. Hasbro has made a distinguishable effort in entering new areas of the consumer discretionary sector. They recently acquired a highly profitable and merchandisable preschool brand as a strategic opportunity for growth for Hasbro in the Infant and Preschool category - the largest category in the toy and game industry according to the NPD group. Hasbro has demonstrated adversity and brilliance by tapping into the TV and Entertainment market with the acquisition of eOne, a Canadian Mass and Entertainment company, allowing them to develop, own, and distribute content to capture a larger audience while continuously appearing on other platforms.

Costco Wholesale Corp.

COST has an HPR of +43.3% YTD. Costco has been a leader in our portfolio this entire third quarter; despite the resistance they faced with the consistent trade between the United States and China. Costco recently opened up a new location in China expecting roughly 68,000 members, but beat expectations considerably at 200,000 members. In spite of the trade war, Costco has handled hardship with ease as consumers continue to purchase more and more consumer staples goods.


UnitedHealth Group Inc.

UNH has an HPR of -12.1% YTD. The story for United Healthcare is that it has been performing similarly to the sounds of a broken record player. Threats of regulatory pressures by the federal government against the healthcare industry has weighed on prices. Currently, the democratic party has been eagerly watching the polls to see who will be nominated to run for the 2020 presidential election. During the month of September, Elizabeth Warren rapidly rose in popularity with the spread between her and Joe Bidens’ ratings narrowing from 14.8% to 0.5%. With her rising popularity, the probability of her becoming elected rises. The healthcare industry has labeled her the “enemy” since she is an advocate of Medicare for all, which could make private insurance providers obsolete.

CVS Health Corp.

CVS has an HPR of -1.4% YTD. CVS has made an impressive turn-around; having recovered from a -12.9% YTD HPR at the end of August. During the month of September, CVS reported positive long-term guidance. CVS has demonstrated resilience as it begins to regain the confidence of investors that they hope CVS will be able to integrate the Aetna’s segments within the expected time frame. In more recent news, CVS has discontinued Zantacs and pulled its products from shelves after the U.S Food and Drug Administration found evidence of the drug being a carcinogen.

Fixed Income

As investors continue to remain bearish in this market, they have begun looking to bonds as a safe alternative to equities. Our strategy of being overweight in Investment Grade Corporates and Emerging Markets and underweight in Treasuries and Securitized led us to miss out on alpha. As a result, our Fixed Income Portfolio underperformed the benchmark by 2.84% YTD.

Furthermore, rate cuts by the FOMC and speculation of an impending recession led investors to pour into Treasuries; pushing yields below 2.00%.

As of the end of September, the greatest HPR has been in CMBS at 10.2%, VCIT at 7.4%, and AGG and 5.8%. Although our holdings have resulted in positive gains, the disconnect in why we are under-performing our benchmark lies in how we positioned our duration. Being 1.39 years underweight, our portfolio has not performed well with the recent economic activity.

We want to shift our strategy for the near future and have sold VCIT, AGG, & CMBS and bought THOPX, PITAX, & USIBX. Our October Update will reflect on how those positions have performed.

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