(PUB) Investing 2016

Morningstar FundInvestor

June 2016

riding the process itself and to prevent any one posi-

tion from having an outsized impact on performance.

That said, this will remain a concentrated, high-convic-

tion fund. It will continue to hold

stocks. Plus,

while individual positions may not grow as large as in

the past, the fund may also hold less cash than it

has historically; the team said the fund’s stock picks ex-

cluding cash have tended to perform better over

time than the portfolio including cash. So, the fund’s

risk profile will remain idiosyncratic, even though

its composition may change.

Meanwhile, governance remains a priority for Sequoia.

Its board is still reshaping itself since Goldfarb’s

departure and the resignations of two trustees last fall.

John Harris will take Goldfarb’s place and will join

Poppe as the other internal board member. Board chair-

man Roger Lowenstein says there are plans to add

another independent trustee before the end of the year.

The firm also announced a new firm-level management

committee consisting of Poppe, Harris, and Alexander.

As for Valeant, its role in the portfolio continues to

diminish. After the team sold shares in the first quarter,

the position represented about

of assets as of

March

. Poppe acknowledges that Valeant faces enor-

mous challenges and likely will not be a long-term

holding. That said, he did not give the impression that

the team is a motivated seller, as the company still

has valuable assets and it thinks highly of new

CEO

Joe Papa.

It can be difficult to separate Sequoia as it now stands

from its incredibly tumultuous recent past. But this

fund has been transformed in important ways. This is

not to say that these changes will lead to immediate

improvements in performance, but, from a governance

and structural standpoint, this fund is in a better place.

PIMCO’s Kiesel Bullish on Credit

PIMCO Investment Grade Corporate Bond

PBBDX

manager Mark Kiesel stopped by our offices and

told Sumit Desai what’s going on and why he still

likes credit.

Desai:

What’s been driving the volatility in credit

this year?

Kiesel

It’s been an interesting year with a lot of ups

and downs. We think the market’s attractive.

Overall, what’s been driving the market has been really

three things: uncertainty over China, where we’ve

gotten, I think, near-term uncertainty resolved a little

bit with more stability on the currency front. But as

we started the year, people were really worried about

China and devalue. Second has been commodity

prices—violent swings there. We bottomed at

oil in February, now we’re in the mid-

s, so that

has recovered. And the third thing has been uncertainty

over central bank policy and negative rates. The

positive news there is that the

ECB

is de-emphasizing

rates, now moving toward expanding

and credit

easing. We think that Bank of Japan will follow that.

So three of the factors--China, commodities, and

central banks--are actually improving, and that’s why

the market has recovered.

Desai:

You mentioned commodities. Obviously energy

has had a nice little run so far this year. Can you talk

a little bit about what you see in that space and how

you’re playing it?

Kiesel

So back in December the team got together—

portfolio managers and analysts—and we thought

that we are closer to a bottom. We had input from Greg

Sharenow, who also is our commodity expert. Our

view was that oil would go, by the end of the year, to

. Back then it didn’t look so good. We did a lot of

bottom-up research. And in January and February we

started buying near the lows fortunately, and we

bought a lot of high-quality exploration and production

companies. We bought a lot of midstream assets

and pipelines. We have seen a big recovery; fortunately

we were able to buy close to the lows and that has

been a good source of alpha for us this year.