Fund managers come in two types: the talkative and the mysterious. Talkative fund managers will often discuss their opinions on macroeconomic developments and their potential impact on investments of all types, whereas the more mysterious types prefer to stay in the shadows and out of the public eye.
No matter their personality type or level of publicity, all portfolio managers reflect their real market attitudes in their trades. While mutual funds do not release info on their holdings on a daily basis like the more often passively-managed ETFs, the occasional disclosures of a fund’s holdings are a good indicator of what a PM’s perception of future market changes. Let’s take a look at three prominent investment banks’ funds to see how their holdings reflect their PMs’ market sentiment. This kind of top-down analysis can sometimes speak volumes about market perceptions of systemic risk.
Pimco: PTTRX
First, let’s look at Bill Gross’s Total Return fund (PTTRX), a mutual fund that has had an alpha of 1.64 over the past 10 years and a price appreciation of 13.36% since inception. The 10-year total return of PTTRX is 6.82%, well above the Morningstar Core Bond Index (5.56%) and Morningstar US Government Bond Index (4.89%), but slightly behind the S&P 500 total return (6.845%), and a bit behind Buffet’s Berkshire Hathaway’s 7.11% performance for the same period.
Looking broadly at the fund’s holdings, it seems to be expecting a modest U.S. recovery partly bolstered by real estate financing. The fund’s largest holding (12.05% weighting) is a eurodollar futures contract due June 2015 (one of several such holdings in the fund). This is essentially a loan that takes advantage of changes in the forward curve for future pricing of interest rates. Additionally, the fund holds several long-term Fannie Mae MBS for single-family homes–two notes due for maturity in 2042 account for a total of 11.52% of the fund’s weighting. These bond holdings are largely bets on a moderately rising or negative yield curve for Federal bonds and a low-inflation or deflationary market. As such, they are great hedges against deflation, a fall in interest rates, or a failure for interest rates to rise. Gross seems certain interest rates are unlikely to climb up anytime soon.
JPMorgan (JPM): OLVAX
While Aryeh Glatter isn’t the household name that Bill Gross is, his Large Cap Value fund (OLVAX) returned an impressive 15.85% in 2012 after he took over the fund in March 2011 (although this is after a small loss in 2011, excluding dividends). Glatter’s fund is energy, finance, and healthcare heavy, with Chevron (CVX), Wells Fargo (WFC), Citigroup ( C), Merck & Co. (MRK), UnitedHealth Group (UNH), and Exxon Mobile (XOM) rounding up his top six exposures.
Glatter, it seems clear, is expecting energy and finance to outperform, which has been an expectation for over a year now. As such, Glatter is betting on increased demand for energy and financial products via a U.S. recovery. Since all of his picks derive the vast majority of their revenue from U.S. based operations, these picks seem to expect lower systemic risk to U.S. assets than foreign stocks.
Goldman Sachs (GS): GGOAX
The GGOAX has an annualized 7.21% return for the past 5 years, beating the S&P 500 heavily for the period, although its annualized return for the past 10 years is 6.2%. This fund has been managed by Steven Barry since 1999, and has an average risk rating and an overall average return rating according to Morningstar. It’s maintained a positive alpha for most years since inception, making it a conservative but well-performing fund.
The stock picks are more aggressive and more diversified, with SBA Communications (SBAC) first in allocation with 3.24% followed by PVH Corp (PVH), C. R. Bard (BCR), PetSmart (PETM), and CBRE Group (CBG). This diversified mid-cap strategy has been a hit for the fund for a while, and a continuation of this strategy frankly doesn’t say much about the fund manager’s long-term macroeconomic point of view except that there is growth potential in these moderate-sized companies. Also important to note is the fund’s international exposure; SBAC operates primarily in Central America, while PVH is a b2b supplier that supplies several national American clothes manufacturers that are looking at an international focus as a growth driver. Indirectly, this fund is also hoping for greater end-consumer demand for retail, telecommunications, and other stuff both at home and abroad.
Conclusion
A close look at a fund manager’s holdings can speak volumes about what they think will or will not happen in the market. Although one’s own investment decisions must come within the context of your overall portfolio, a look at these holdings is a great opportunity for all investors to get ideas on where fund managers’ expectations lie, and what securities investors should consider buying or sho