John Burbank's hedge fund firm Passport Capital talked about their rationale for owning Marathon Petroleum (MPC) in their year-end letter.
Marathon Petroleum (MPC)
Passport writes, "Marathon has an $11.8 billion market capitalization and an enterprise value of $12.2 billion. We expect the company to generate $3.9 billion in EBITDA in 2012 and free cash flow (FCF) of $1.5 billion, for roughly a 14% FCF yield.
During the quarter, the company raised their quarterly dividend from $0.20/share to $0.25/share, resulting in approximately a 3% dividend yield at year end. During its first analyst day in December, the company emphasized its highly experienced management team, cycle-tested business model, unique integrated asset base, and sound financial position. MPC also emphasized organic projects in 2012 that could increase access to discounted crudes and increase yield of higher margin products like distillates. Their Detroit refinery upgrade (expected by the end of 2012) was reported to be on schedule and budget.
While the fourth quarter was weaker than originally expected given the decline in the Brent/WTI spread, it is typically the weakest quarter of the year. Importantly, the decline in the Brent/WTI spread does not impact our free cash flow estimate for 2012, which provides a yield of 14% and remains unchanged despite the decline in the spread."
So what other funds own Marathon Petroleum? Barry Rosenstein's JANA Partners is the second largest owner of MPC shares after assembling a massive new position in the fourth quarter.
As of December 31st, here were Passport's Top Ten Equity Positions:
1. Marathon Petroleum (MPC): 5% of NAV
2. Liberty Interactive (LINTA): 4%
3. Cytec Industries (CYT): 3%
4. Thoratec (THOR): 3%
5. Tarpon Investimentos (TRPN3.BZ): 2%
6. Cie Financiere Richemont SA (CFR.VX): 2%
7. Vivus (VVUS): 2%
8. C&J Energy Services (CJES): 2%
9. Priceline.com (PCLN): 2%
10. WebMD (WBMD): 1%
You can view an equity analysis of Priceline.com in the brand new issue of our Hedge Fund Wisdom newsletter.
Also, we recently highlighted why Carl Icahn likes WebMD as well. Lastly, you can watch John Burbank's interview with Bloomberg where he talks about why he likes VVUS and why he thinks 2012 is a stockpicker's market.
For more of the hedge fund's commentary, we've also posted up why Passport Capital likes Liberty Interactive (LINTA).
Wednesday, March 7, 2012
Why Passport Capital Likes Marathon Petroleum (MPC) & Top Equity Positions
Why Passport Capital Likes Liberty Interactive (LINTA)
In their year-end letter, John Burbank's hedge fund firm Passport Capital talked about their investment thesis on one of John Malone's companies:
Liberty Interactive (LINTA)
Passport writes,
"Liberty Interactive returned 9.9% during the fourth quarter. Having successfully resolved bondholder litigation that had constrained its ability to return capital to shareholders, the company split from parent corporation Liberty Media Corp. in late September. We view this split as the first step in a shareholder- friendly metamorphosis of LINTA reminiscent of those undergone by other Liberty entities which became Liberty Global, Discovery Communications, and DirecTV. Key strategies include equity shrink, sale/spin-off of non-core assets, and a consequent broadening of the shares’ market constituency.
In October, the company repurchased shares at a 12% annualized rate. We expect this pace to accelerate given the company's significant liquidity and minority equity stakes, which amount to approximately 57% of market capitalization as follows:
- Value, partially taxed, of minority equity positions in Expedia, TripAdvisor, and Home Shopping Network: approximately 28% of market capitalization
- Cash in excess of operating needs: approximately 8% as calculated by Passport
- 2012 FCF yield (before impact of share repurchase): approximately 8% as calculated by Passport
- Additional debt expected on QVC bank credit line: approximately 13% as calculated by Passport
The company’s primary operating asset, QVC, is a high-quality cash generator which has performed in line with our expectations. While the primary bear case on the business is online competition, we note that 35% of QVC’s U.S. sales and about 30% of total company sales transact online, that over half of QVC’s new customers have been arriving online, and that QVC’s customer repeat rates have generally been steady for many years. QVC’s franchise is rooted in its ability to move incremental volumes for manufacturers and consistently please its loyal consumers, and for this QVC receives differentiated merchandise and pricing that represent a significant moat around the business. QVC’s 20% operating (OIBDA) margins and its recent shipping and handling price increase support this point."
Other Hedge Funds That Own LINTA
John Malone's various Liberty entities have always seemingly been owned by hedge funds. Liberty Interactive (LINTA) in particular is owned by numerous other managers besides Passport.
However, what's interesting is that in the fourth quarter, LINTA was one of the stocks most actively reduced or sold by the 50+ prominent hedge funds we track. Despite this, a plethora of well known managers still own the stock.
Here are some of the top owners of LINTA in descending order: Empyrean Capital Partners, Highbridge Capital, SAC Capital, JANA Partners, Carlson Capital, Third Point, Senator Investment Group, and Ivory Investment Management.
For more from Burbank's firm, we've also posted up why Passport Capital likes Marathon Petroleum (MPC).
Lee Cooperman's Omega Advisors Starts Stake in Home Loan Servicing Solutions (HLSS)
Lee Cooperman's hedge fund firm Omega Advisors has started a brand new position in Home Loan Servicing Solutions (HLSS) as the company completed its initial public offering on February 29th.
Omega filed a 13G with the SEC disclosing their 9.9% ownership stake in Home Loan Servicing Solutions with 1,388,000 shares.
The company cut the planned size of its IPO down to 13.3 million shares after initially targeting 18.3 million shares. HLSS currently trades around $13.50.
You can view the rest of Omega Advisors' portfolio in a free excerpt of our new newsletter.
Per Yahoo Finance, Home Loan Servicing Solutions "a development stage company, focuses on acquiring mortgage servicing assets, primarily subprime and Alt-A mortgage servicing rights and associated servicing advances."
Tuesday, March 6, 2012
What Carl Icahn Sees in WebMD: Stock of the Week
We're proud to announce a new series here on MarketFolly.com: stock of the week. This series aims to provide a quick summary of what hedge fund managers and well known investors might see in a particular company.
These posts are written by Tsachy Mishal who is the Portfolio Manager at TAM Capital Management. He provides background on the situation, as well as what he likes and dislikes about the company. Here's his take on what Carl Icahn sees in WebMD (WBMD):
Carl Icahn is so well known for putting fear in the heart of corporate boards and entrenched managements everywhere, that his amazing record as an investor is often overshadowed. When I saw WebMD trading at a 52 week low I was eager to take a look as Carl Icahn bought 11.64% of the company at significantly higher prices.
WebMD is the most visited health related website in the US by both patients and doctors. People visit the site in order to learn more about drugs, illnesses, and general health issues. WebMD largely makes its money off of advertising. WebMD has stumbled recently as pharmaceutical companies have cut ad spending. Pharmaceutical companies are facing a patent cliff which is a double whammy for ad spending. There are fewer drugs to advertise and companies are looking to offset lost revenue with lower costs.
WebMD has a market cap of $1.4 billion and $320 million in net cash for an enterprise value of $1.08 billion. In 2011 WebMD produced $558 million in revenue and $116 million in free cash flow. In 2012 revenue is expected to fall to $507 million and free cash flow is expected to fall to $65 million.
What I like:
- WebMD trades at a little over 9 times 2011 free cash flows. If they could turn around their revenue decline and cut costs, the stock would be very attractively priced.
- Carl Icahn seems to be influencing the company as the recent tender offer is straight out of his playbook.
- There is a tender offer for $150 million worth of shares. Tender offers tend to have a positive short term effect on stock prices.
What I don't like:
- WebMD trades at 16 times forward free cash flow, which seems high for a stumbling company.
- Stock option expense is nearly $40 million a year, which is a very large portion of free cash flow and earnings.
- Content creation on the internet does not have any barriers to entry.
- There do not seem to be any potential acquirers as the company unsuccessfully tried to sell itself recently.
I must admit to scratching my head when first looking at the company, trying to figure out what Carl Icahn sees. Then, I realized that just a few months ago there were expectations for growing revenue and free cash flow. I'm not certain that Carl Icahn would have gotten himself into this situation had he known he was looking at a revenue and free cash flow decline. However, as owner of 11.6% of the company, it's difficult for him to turn back. WebMD is now a turnaround situation and with Carl Icahn calling the shots I wouldn't bet against them. That said, I'm not interested in betting alongside Carl Icahn in WebMD.
That concludes the first entry in MarketFolly's new series: stock of the week. The above was written by Tsachy Mishal, Portfolio Manager at TAM Capital Management.
Alan Fournier's Pennant Capital Starts HomeServe Position
Alan Fournier's hedge fund Pennant Capital disclosed a new position in HomeServe (LON:HSV) traded in the UK.
On March 2nd, 2012, Pennant crossed the 3% ownership threshold required for regulatory notification. The hedge fund now owns over 9.7 million shares of HSV. They have over 10.6 million in voting rights which is equivalent to a 3.24% stake.
We've detailed the rest of Pennant's portfolio in the latest issue of our Hedge Fund Wisdom newsletter that was just released.
Per Google Finance, HomeServe "provides home emergency and repair services to over 4.9 million customers across the United Kingdom, the Unites States of America, France and Spain. Services are provided through its membership businesses, which are responsible for the marketing and administration of over 11 million home repair and appliance warranty policies."
We've also detailed how Pennant has been active in shares of Huntington Ingalls Industries.
Steve Cohen's SAC Capital Boosts Dynavax Technologies Stake
Steve Cohen's hedge fund SAC Capital just filed a 13G with the SEC regarding shares of Dynavax Technologies (DVAX).
The hedge fund has boosted its holdings by 831,731 shares, almost a 12% increase in their position size since the end of 2011.
SAC Capital now owns 7,856,130 shares of DVAX which is a 5.1% ownership stake in the company. The SEC filing was made due to trading activity on February 22nd. You can also see some of SAC's other recent portfolio activity here.
Per Google Finance, Dynavax Technologies is "a biopharmaceutical company that discovers and develops products to prevent and treat infectious diseases, asthma and inflammatory and autoimmune diseases. The Company’s principal product candidate is HEPLISAV, a Phase III investigational adult hepatitis B vaccine. Its pipeline of product candidate includes HEPLISAV; its Universal Flu vaccine; clinical-stage programs for hepatitis C and hepatitis B therapies, and preclinical programs partnered with AstraZeneca and GlaxoSmithKline (GSK)."
SAC Capital was recently named one of the top 10 hedge funds by net gains since inception.
Tom Brown's Second Curve Capital Raises Stake In The Bancorp (TBBK)
Tom Brown's hedge fund firm Second Curve Capital just filed a 13G with the SEC regarding shares of The Bancorp (TBBK).
Due to trading activity on March 1st, 2012, Second Curve has disclosed a 5.1% ownership stake in The Bancorp with 1,692,832 shares. This is an increase of 37% in their position size since the end of 2011.
About Second Curve Capital
Prior to founding Second Curve, Tom Brown headed the financial services group at Julian Robertson's Tiger Management. As such, it should come as no surprise that his fund largely focuses on financials.
About The Bancorp
Per Google Finance, The Bancorp is "a financial holding company with a wholly owned subsidiary, The Bancorp Bank (the Bank). Through the Bank, the Company provides a range of commercial and retail banking services and related other banking services, which include private label banking, health savings accounts stored value (prepaid debit) cards and merchant card processing to both regional and national markets."
Soros Ramps Up Holdings in Acacia Research (ACTG)
George Soros' hedge fund turned family office, Soros Fund Management, filed a 13G with the SEC in regards to Acacia Research Corp (ACTG). They've revealed a 5.64% ownership stake in the company with 2,801,180 shares.
This marks almost a 600% increase in their position size since the end of 2011. The disclosure was made due to trading activity that crossed the regulatory threshold on February 21st.
Per Google Finance, Acacia Research Corp "through its operating subsidiaries, acquires, develops, licenses and enforces patented technologies. The Company’s operating subsidiaries generate revenues and related cash flows from the granting of rights for the use of patented technologies, which its operating subsidiaries own or control.
Its operating subsidiaries assist patent owners with the prosecution and development of their patent portfolios, the protection of their patented inventions from unauthorized use, the generation of licensing revenue from users of their patented technologies and, if necessary, with the enforcement against unauthorized users of their patented technologies.
In January 2012, the Company acquired ADAPTIX, Inc. In January 2012, the Company acquired patents relating to catheter ablation technology. In February 2012, the Company’s subsidiary acquired over 300 patents from Automotive Technologies International."
Soros Fund Management was recently listed as one of the top 10 hedge funds by net gains since inception.
Friday, March 2, 2012
Dan Loeb's Third Point Starts Apple (AAPL) Stake: Top Positions & Latest Exposures
Dan Loeb's $4.6 billion Offshore Fund at Third Point finished February up 1% and is now up 4.9% for the year. As of the end of February, here are their top stakes:
Third Point's Top Positions
1. Yahoo! (YHOO)
2. Gold
3. Eksportfinans ASA
4. Delphi (DLPH)
5. Apple (AAPL)
Apple now makes an appearance in Loeb's top holdings and is the big takeaway here because the hedge fund did not own AAPL at the end of the year.
Third Point also revealed that one of their big winners in the month was the Medco Health (MHS) and Express Scripts (ESRX) arbitrage play. This is another new play that was not present in Third Point's portfolio at the end of the year. To read about this arbitrage play, check out a free excerpt from our newsletter as it's briefly discussed in the Omega Advisors section.
Latest Equity Exposure
In equities, Third Point is 53.2% long and -16.5% short, leaving them 36.7% net long. They've continued to ramp up their net long exposure as they were 28.2% net long just a month ago.
Their largest allocation continues to be in the technology sector at 16.2% net long (largely due to their activist position in Yahoo). Their next highest exposure is the consumer sector at 7% net long.
One of their losers in the past month was Marvell Technology (MRVL), a new stake they initiated in the fourth quarter. Apple (AAPL) was one of their big winners in the month as it ramped up right after they initiated a stake.
Credit Exposure
In credit, Loeb's firm is 18.7% net long (40% long and -21.3% short). This is up from 15.6% net long exposure in January. Their biggest net long allocation is in asset backed securities (ABS) at 14.3% net long and they continue to be net short government issues at -14.2%.
For some thoughts on their portfolio, head to Third Point's Q3 letter.
Nelson Peltz Sells Some H.J. Heinz (HNZ)
Trian Fund Management's Nelson Peltz has filed a slew of Form 4's with the SEC regarding his stake in H.J. Heinz (HNZ). Between February 24th and 28th, Peltz has sold 209,200 HNZ shares. He's reduced his position size by almost 20%.
The bulk of his share sales came at a price of $53.5713, though he also sold at $53.0968 just three days ago. HNZ currently trades around that level, at $52.98. As of February 28th, Peltz now owns 837,884 shares of Heinz.
Per Google Finance, Heinz "together with its subsidiaries is engaged in manufacturing and marketing a range of food products throughout the world. The Company’s principal products include ketchup, condiments and sauces, frozen food, soups, beans and pasta meals, infant nutrition and other food products. The Company’s products are manufactured and packaged to provide safe, wholesome foods for consumers, as well as foodservice and institutional customers."
Warren Buffett's Annual Letter 2011: Key Takeaways
If you haven't seen it already, Warren Buffett is out with his 2011 annual letter to Berkshire Hathaway shareholders. Here are some key takeaways:
- Succession: Buffett puts the succession talk (somewhat) to rest as the company has identified a successor at CEO. They also have two backup candidates as well. The problem is, people will take issue with the fact that the identities still haven't been revealed.
So, when Buffett does finally decide to step down from Berkshire (or when he passes on, because he could certainly work there until the day he dies), the company will be able to transition to the next era. The question now becomes, how much "Buffett premium" is in the stock?
We've also long detailed how Buffett has chosen two new investment manager successors as well. He hired Todd Combs from hedge fund Castle Point Capital and Ted Weschler from hedge fund Peninsula Capital Advisors.
- Buybacks: The Oracle of Omaha clearly thinks his company's stock is undervalued and is anxious to buy back Berkshire Hathaway shares as high as 1.1x book value, which would be around $110,000 on the A shares (BRK.A) as of year-end. Shares currently only trade around 7% higher at $117,755.
- Acquisitions: The two most recent major acquisitions for Berkshire Hathaway, Lubrizol and Burlington Northern Santa Fe, have delivered record operating earnings. So yet again, Buffett has made some prescient buys.
It's also not out of the question that Buffett could possibly make some additional acquisitions in the near future. After all, his Berkshire businesses are throwing off around $1 billion per month as a whole that he could use. While he doesn't specifically mention anything in the letter, it seems like an obvious possibility. As to where he might look, we've detailed in the past how Buffett likes businesses with pricing power (Lubrizol).
Embedded below is what value investors have deemed a must read every year: Warren Buffett's annual letter to Berkshire Hathaway shareholders (you can download a .pdf copy here):
For more resources from one of the greatest investors ever, check out:
- Warren Buffett's recommended reading list
- Top 25 Warren Buffett quotes
- A compilation of Buffett's partnership letters
- Buffett's worst trade
Thursday, March 1, 2012
Jeremy Grantham's 10 Investment Lessons
GMO's Jeremy Grantham is out with a February 2012 letter which he has entitled, "The Longest Quarterly Letter Ever." In it, he outlines 10 investment lessons for individual investors.
Jeremy Grantham's 10 Investment Lessons:
1. Believe in history: "history repeats and repeats, and forget it at your peril. All bubbles break, all investment frenzies pass away."
2. Neither a lender nor a borrower be: "Unleveraged portfolios cannot be stopped out, leveraged portfolios can. Leverage reduces the investor's critical asset: patience."
3. Don't put all your treasure in one boat: "This is about as obvious as any investment advice could be ... Several different investments, the more the merrier, will give your portfolio resilience, the ability to withstand shocks."
4. Be patient and focus on the long term: Wait for the good cards. If you've waited and waited some more until finally a very cheap market appears, this will be your margin of safety."
5. Recognize your advantages over the professionals: "The individual is far better-positioned to wait patiently for the right pitch while paying no regard to what others are doing, which is almost impossible for professionals."
6. Try to contain natural optimism: "optimism comes with a downside, especially for investors: optimists don't like to hear bad news."
7. But on rare occasions, try hard to be brave: "You can make bigger bets than professionals can when extreme opportunities present themselves because, for them, the biggest risk that comes from temporary setbacks - extreme loss of clients and business - does not exist for you."
8. Resist the crowd, cherish numbers only: "this is the hardest advice to take: the enthusiasm of a crowd is hard to resist. The best way to resist is to do your own simple measurements of value, or find a reliable source (and check their calculations from time to time) ... and try to ignore everything else."
9. In the end it's quite simple, really: "GMO predicts asset class returns in a simple and apparently robust way: we assume profit margins and price earnings ratios will move back to long-term average in 7 years from whatever level they are today. We have done this since 1994 and have completed 40 quarterly forecasts ... Well, we have won all 40."
10. This above all, to thine own self be true: "To be at all effective investing as an individual, it is utterly imperative that you know your limitations as well as your strengths and weaknesses ... you must know your pain and patience thresholds accurately and not play over your head. If you cannot resist temptation, you absolutely must not manage your own money."
Grantham elaborates on each lesson and address other topics in his full quarterly letter, embedded below:
For more insight and market commentary, be sure to also check out Howard Marks' latest letter, as well as Eric Sprott's commentary.
What We're Reading ~ 3/1/2012
Tiger Global gets rich off IPOs long before you see them [Forbes]
Shifting hedge fund landscape: operations & due diligence [AllAboutAlpha]
Hedge fund risk management a work in progress [Simon Kerr]
A peak at Einhorn on the job [Dealbook]
Wall Street was never on your side [Abnormal Returns]
Hedge funds faulted for not being short-term enough [Reuters]
Also: Howard Marks on the hedgie performance paradigm [Market Folly]
Why hedge fund managers need fewer friends [eFinancialNews]
Dan Zwirn's fall a horror story of doing right [Bloomberg]
Warren Buffett is wrong about gold [AR+Alpha]
On what David Tepper sees in Boston Scientific [CapitalObserver]
Write up on Media General (MEG) [Kinnaras Capital]
Newer hedge funds saw $12.4 in deposits since 2009 [Bloomberg]
A secretive hedge fund legend prepares to surface [CNBC]
Confessions of a reformed stockbroker [BusinessWeek]
The new ETF that could kill mutual funds [Fiscal Times]
Bill Gross' Investment Outlook: Defense
PIMCO's Bill Gross is out with his latest 2012 investment outlook, entitled "Defense." Given all the equity commentary on the site lately, we thought we'd add some fixed income color.
In his commentary, Gross outlines the core tenets of PIMCO's "offense" from 1981 to 2011. Now, from 2012 onwards, Gross says that "successful investing in a deleveraging, low interest rate environment will require defensive in addition to offensive skills."
To learn what exactly that means, here is Gross' entire commentary below:
- Over the past 30 years, an offensively minded Federal Reserve and their global counterparts were printing money, lowering yields and bringing forward a false sense of monetary wealth.
- Successful investing in a deleveraging, low interest rate environment will require defensive in addition to offensive skills.
- The PIMCO defensive strategy playbook: Recognize zero bound limits and systemic debt risk in global financial markets. Accept financial repression but avoid its impact when and where possible. Emphasize income we believe to be relatively reliable/safe; seek consistent alpha.
My point about pigskin offense and defense is the perfect metaphor for the world of investing as well. Offensively minded risk takers in the markets have historically been the ones who have dominated the headlines and won the hearts of that beautiful gal (or handsome guy). Aside from the rare examples of Steve Jobs and Bill Gates, however, the secret to getting rich since the early 1980s has been to borrow someone else’s money, throw some Hail Mary passes and spike the ball in the end zone as if you had some particular genius that deserved monetary rewards 210 times more than a Doctor, Lawyer or an Indian Chief. Nah, I take that back about the Indian Chief. The Chiefs, at least, have done pretty well with casinos these past few decades.
Still, the primary way to coin money over the past 30 years has been to use money to make money. Although the price of it started in 1981 at a rather exorbitantly high yield of 15% for long-term Treasuries, 20% for the prime, and real interest rates at an almost unbelievable 7-8%, the gradual decline of yields over the past three decades has allowed P/E ratios, real estate prices and bond fund NAVs to expand on a seemingly endless virtuous timeline. Books such as “Stocks for the Long Run” or articles such as “Dow 36,000” captured the public’s imagination much like a Montana to Jerry Rice pass that always seemed to clinch a 49ers victory. Yet an instant replay of these past few decades would have shown that accelerating asset prices weren’t due to any particular wisdom on the part of academia or the investment community but an offensively minded Federal Reserve and their global counterparts who were printing money, lowering yields and bringing forward a false sense of monetary wealth that was dependent on perpetual motion. “Rinse, lather, repeat – Rinse, lather, repeat” was in effect the singular mantra of central bankers ever since the departure of Paul Volcker, but there was no sense that the shampoo bottle filled with money would ever run dry. Well, it has. Interest rates have a mathematical bottom and when they get there, the washing of the financial market’s hair produces a lot less lather when it’s wet, and a lot less body after the blow dry. At the zero bound, not only are yields rendered impotent to elevate P/E ratios and lower real estate cap rates, but they begin to poison the financial well. Low yields, instead of fostering capital gains for investors via the magic of present value discounting and lower credit spreads, begin to reduce household incomes, lower corporate profit margins and wreak havoc on historical business models connected to banking, money market funds and the pension industry. The offensively oriented investment world that we have grown so used to over the past three decades is being stonewalled by a zero bound goal line stand. Investment defense is coming of age.
While Wall Street and levered investors have fared better than their Main Street counterparts, it’s not as if they’re in “primetime Deion Sanders” shape either. Conceptualize the historical business model of any financially-oriented firm for the past 30 years and you will see what I mean. Insurance companies, for instance, whether they be life insurance with their long-term liabilities, or property/casualty insurance with more immediate potential payouts, have modeled their long-term profitability on the assumption of standard long-term real returns on investment. AFLAC, GEICO, Prudential or the Met – take your pick – have hired, staffed, advertised, priced and expensed based upon the assumption of using their cash flows to earn a positive real return on their investment. When those returns fall from 7% positive to an approximate 1% negative, then assumptions – and practical realities – begin to change. If these firms can’t cover inflation with historical real returns from their float, then they begin to downsize in order to stay profitable. The downsizing is just another way of describing a transition from offense to defense in a zero bound nominal interest rate world where almost any level of inflation produces negative real yields on investment.
- Recognize downward trend in interest rates and scale duration accordingly.
A. Emphasize income and capital gains. PIMCO Total Return Strategy.
B. Utilize prudent derivative structures that benefit from systemic leveraging – financial futures,
swaps (but no subprimes!)
C. Combine A and B along with careful bottom-up security selection to seek consistent alpha.
Ready, Set, Hut, Hut, Hut –
- Recognize zero bound limits and systemic debt risk in global financial markets. Accept financial repression but avoid its impact when and where possible.
A. Emphasize income we believe to be relatively reliable/safe.
B. De-emphasize derivative structures that are fully valued and potentially volatile.
C. Combine A and B along with security selection to seek consistent alpha with admittedly lower nominal returns than historical industry examples.
So there you have it – the PIMCO playbook. I suppose if I had any common sense I would hold up that clipboard to the front of my mouth like sideline coaches do during big games. Don’t want to chance any of the competition reading our lips to get a heads up on PIMCO’s next offensive play call. But then that’s never been my or Mohamed’s style, given the importance of informing you, our clients, of what we are thinking when it comes to investing your hard-earned capital. Go ahead competitors and read our lips, we’ll just pound that pigskin down the field anyway. Besides, as I’ve pointed out, the emphasis these days should be on the defensive coach. Leveraging has turned into deleveraging. 15% yields have turned into 0% money. The Super Bowls of the future will have their Mannings and Bradys, but the defensive line may record more sacks and make more headlines than ever before.
For other market commentary, we've posted up Jeremy Grantham's 10 investment lessons as well as Oaktree Capital and Howard Marks' latest letter.
