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Conference Highlights
Grantham’s Bearish Case
The market is creeping toward bubble-land but isn’t
there quite yet, said
GMO
chief investment strategist
Jeremy Grantham at the
2015
Morningstar Investment
Conference. He warned investors to pay careful atten-
tion as valuation metrics begin to approach a “
2
sigma
event,” or
2
standard deviations away from the norm.
“Every
2
-sigma event is followed by an equal and
offsetting
2
-sigma reversion,” he said, adding that the
pattern occurred in
28
out of
28
of the major bubbles
GMO
has studied throughout history. “And they all
went back half a year quicker than they went up,”
he added.
So, where’s the mean and where are we today?
Grantham cited a
21
.
1
price/earnings multiple on the
S
&
P today versus a normal P/E of
16
.
0
, while corpo-
rate profit margins are currently at
7
.
3%
versus a norm
of
5
.
7%
.
But although profit margins have been abnormally
high, they have been curiously slow to revert to histor-
ical norms, Grantham noted. “My belief is that it
has a lot to do with a regime shift to the Greenspan
era and his acolytes,” he said. “The [market] P/E in
the new regime has been
60%
higher than it was for
100
years before.”
In addition, he argued that the rise of stock options
in executive compensation has played a role in making
profit margins stickier--but not without a cost.
“We’ve entered a world where
80%
of remuneration
comes from stock options combined with ... a fixation
on short-term profit maximization,” which encourages
CEO
s to undertake stock buybacks versus
capital expenditures.
Kelly’s Bullish Case
J.P. Morgan Asset Management chief global strategist
David Kelly gave a relatively upbeat assessment of
Fund Manager Changes
Fund News
Columbia Acorn ACRNX
Impact: Negative Date: 05-01-15
Columbia Acorn USA AUSAX
Lead manager Rob Mohn plans to retire in the fourth quarter of 2015. In addition to comanager David Frank,
Zach Egan and Fritz Kaegi were named comanagers of the fund to prepare for Mohn’s departure. No
managers were added to Columbia Acorn USA, where William Doyle serves as Mohn’s comanager. In addition,
Acorn is moving to a more traditional portfolio manager/analyst division of labor in which analysts will no
longer add stocks and choose their portfolio weighting.
|
Our Take: Poor performance has spurred wrenching
changes at the funds. We have put both funds
ˆ
. We lowered Columbia Acorn’s Morningstar
Analyst Rating to Neutral in 2014 because of concerns about redemptions and poor performance. Columbia
Acorn USA had been rated Bronze.
Matthews China MCHFX and Matthews Pacific Tiger MAPTX
Impact: Negative Date: 07-01-15
Richard Gao has stepped down from his roles as the lead manager on Matthews China and as a comanager on
Matthews Pacific Tiger. Comanager Andrew Mattock will take over on Matthews China, and Sharat Shroff will
remain lead manager on Matthews Pacific Tiger.
|
Our Take: We have placed both funds
Ø
. It looks
like a much bigger blow to Matthews China. Mattock is a seasoned investor, but he only joined Matthews this
year. Shroff is an established and proven skipper at Matthews Pacific Tiger, and he, like Mattock, has an excep-
tional support team.
Perkins Mid Cap Value JMCVX
Impact: Negative
Date: 04-05-15
Comanager Jeff Kautz resigned. Kevin Preloger, who was named comanager in April 2013, remains
and will be joined by Justin Tugman of Perkins Small Cap Value JSCVX.
|
Our Take: The fund has been
trying to get back on track after several years of underwhelming performance. The fact that its five-
year results aren’t up to par isn’t surprising or disappointing given the fund’s relatively conservative process,
but weak stock-picking is more cause for concern. The loss of a long-tenured manager is disappointing
but not insurmountable. Risk-adjusted results since inception remain strong. However, the departure, coupled
with the fund’s stock-picking woes, is enough to move this fund’s Morningstar Analyst Rating to
´
from Silver.
T. Rowe Price Growth & Income PRGIX
Impact: Neutral
Date: 06-01-15
Jeff Rottinghaus took over for Thomas Huber. Huber remains at T. Rowe Price Dividend Growth PRDGX.
|
Our Take: Huber has done a fine job here and at T. Rowe Price Dividend Growth, but Rottinghaus has a solid
five-year record at T. Rowe Price U.S. Large-Cap Core TRULX. There, he has produced five-year returns of
17.3% annualized versus 17.04% for the S&P 500 and 16.45% for the large-blend category. However, that fund
has only $116 million in assets, so Rottinghaus now has more on his plate with this $1.5 billion fund.
Vanguard Convertible Securities VCVSX
Impact: Negative Date: 06-01-15
Veteran manager Larry Keele is stepping down and being replaced by Stuart Spangler.
|
Our Take: Oaktree is
an excellent firm, so we remain confident in the fund, but it’s still a blow to lose Keele, who has built a great
record here. We lowered our rating to
´
.
Weitz Value WVALX
Impact: Negative Date: 12-31-15
Wally Weitz is stepping down from management responsibilities here. However, he will remain manager at
Weitz Partners Value WPVLX and Weitz Hickory WEHIX. Comanagers Brad Hinton and Dave Perkins will take
over his responsibilities.
|
Our Take: Weitz’s departure from the fund is a loss, but he’s been working on the
transition for years, and we feel good about Hinton and Perkins. We are maintaining our rating of
•
on
the fund.