PORTFOLIO SPOTLIGHT
“ The bad news in the commercial real estate sectors gives us the chance to do our work and buy when people are selling . We ’ ll see if we get the opportunity to buy those ABM securities ,” he says .
America ’ s Cup
One of the fund ’ s features is that it ’ s nimble in making allocations . It ’ s held common stocks in a historic range of 27 % to 74 % of the portfolio , whereas the bonds / credit category has ranged from zero to 34 %, and cash and equivalents from 5 % to 58 %.
“ We can allocate quickly when we see opportunities ,” Romick says . “ In 2008- 2009 our high-yield exposure went from single digits to 34 % in about four months . We ’ re not seeing that [ favorable ] risk / reward today .” Indeed , the fund ’ s 3.3 % weighting toward the bonds / credit category is currently at the low end of the historic range . In turn , the fund ’ s cash allocation had risen to 28 % as of this year ’ s third quarter .
Romick says the fund ’ s increased focus on global stocks since 2011 prompted the managers to shift from the S & P 500 to the MSCI ACWI as their primary benchmark for the fund ’ s equity allocation . The former index is still used primarily to measure the fund ’ s pre-2011 performance . As of the third quarter , the fund ’ s geographic allocation was 62 % domestic securities , 34 % international developed names and 4 % emerging markets .
Romick points out that the fund ’ s stock selection process has changed through the years . “ A lot of the old businesses we used to like ” … he says before abruptly stopping and then shifting in another direction … “ at the end of the day we need growing businesses . We like some wind in our sails . We ’ re not looking for galeforce winds to compete in the America ’ s Cup , but we don ’ t want to be out there in the calm . And we also don ’ t want to be thrashed against the rocks .”
For that reason , the fund has turned to some big names in the technology sector . Among the fund ’ s recent top 10 holdings were Google ’ s parent company Alphabet , Analog Devices and Meta Platforms .
The fund has a very low turnover rate of 8 %, which is surprising given its variegated portfolio — securities in different asset classes that seemingly require substantial fine-tuning to stay on course .
“ Our turnover can be low when we find horses like Google that we can ride for a long time before they go to the glue factory ,” Romick says . The fund initiated its position in the company in 2011 .
In late October , Alphabet ’ s stock took a big hit after it announced less-thanexpected revenue in its cloud computing division . For Romick , that ’ s a distraction that doesn ’ t dim his positive longterm outlook on the stock .
“ In 10 years Alphabet will probably still be Alphabet and will have more success than we suspect in some areas and not as much success in others , but netnet it ’ ll be a more profitable business 10 years from now than it is today .”
The “ Other ” Category
The fund usually has a small allocation ( less than 5 %) to its “ other ” asset class . This can include illiquid , nontraditional investments , as well as short positions , including pair trades . The fund did such a trade with a couple of automakers when it went long Renault but shorted its strategic partner Nissan .
Other vehicles in this category have included private credit , a position in container ships , and some total-return swaps in the cannabis space .
“ We do it as a basket position ,” Romick explains . “ We take the position that in five years these things should be worth three to five times what they ’ re trading now .”
He says his fund tends to do best during periods of dislocation , and not as well when the market rises parabolically . “ Our downside protection tends to be better , and that ’ s what drives our returns ,” he says , emphasizing that the fund ’ s calling card is its ability to generate positive returns over long market cycles .
“ We ’ re not trying to knock the cover off the ball every quarter ,” Romick says . “ We don ’ t want to talk about quarterly returns ; we look at things across full market cycles .”
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DECEMBER 2023 | FINANCIAL ADVISOR MAGAZINE | 53