Author: Andy Schornack
Covestor models: Financial Services, Market Maven
Disclosure: Long RNST, OAK
We experienced disappointing returns for the Market Maven model in July. My thesis and expectations on SuperValu (SVU) were missed and the stock was sold. This had a material impact on the model for the month.
The Financial Services model, on the other hand, continues to perform positively after the recent additions and changes.
During the month, there were changes in both models. The Financial Services model sold its position in Goldman Sachs (GS) and in early August, trimmed its position in Renasant (RNST). The model also added a new position in Oaktree Capital Group (OAK) in early August.
Goldman Sachs was sold to invest in better opportunities for the portfolio. The company, while continuing to trade at below book value provides for a longer outlook on recovery when compared to other options.
Renasant is a company that continues to be well run and provide a good dividend. This will continue to be a holding in the portfolio but given its run up from the purchase to increase its position size in May 2012, I felt a slight reduction was needed. The company continues to look to expand in its market area and grow as a regional bank. I like the management, the results, and the outlook long-term.
The new addition and an investment I am very positive about was the purchase in Oaktree Capital Group. The position is not a large position in the portfolio but a good starting position size. The company is a global investment management firm focused on alternative markets and is best known for its distressed investments and its Chairman, Howard Marks. Howard Marks is very well known in value investor circles and provides great market commentary.
I like Oaktree for three reasons: the stock trades at a discount to sum of its parts valuation, has an excellent investment record, and the stock focuses on distressed assets at a time I believe the market is recovering in the US and opportunities abound in Europe. This plays out in my thesis as follows: the company will see increasing returns in the US, while it’s able to deploy new investment dollars and fund assets into opportunities in Europe amid the tightening liquidity caused by current debt challenges.
Oaktree’s Q2 earnings beat expectations and an increase in distribution to unit holders was declared. The investment is a shadow of my investment thesis in KKR (KKR) back in 2010.
I continue to be positive about the position of both portfolios. Each provides an attractive indicative dividend yield as of August 14, 2012, and is invested in companies that based on my research provide attractive return probabilities.
