NYC Meetings – Alliance Bernstein, Miller-Howard, Skybridge
In 2006, I decided to formalize the frequent trips I took to New York City and set the first week of October as my official annual trip to visit money managers, hedge funds, and strategists with whom we have a relationship (and clients, too, of course). Over the years, that access has grown, the trip lengthened, and the utility of these visits has become significant. This year I have decided to blog at the end of each day key takeaways from the various meetings…
I apologize if some of the vocabulary and terminology of this week’s blogs have been confusing or incomprehensible. I don’t know how to gauge the efficacy of these daily blogs as a means of telling clients some of the things I am discussing with these money managers and sources of idea generation and intellectual capital here in NYC, but I am hoping there is something noteworthy, digestible or interesting in these communications. I can assure you that what is making it to these blogs is a minuscule portion of what is being discussed in these meetings. I hope to have a better summary of the week and easier to digest version available next week. In the meantime, just know that the writing is partially skewed by the fact that I am coming straight from meetings with portfolio managers, analysts and traders. We talk a certain way and use jargon within our business. Frankly it’s hard to turn off when I am back in the hotel room very late at night writing these entries. Enough of that — you get the idea …
Wednesday, October 7, 2015
Today’s first meeting was with my municipal bond managers at Alliance Bernstein, who cover both California, New York, the High Yield space, and some non-state specific. Daryl Clements, lead portfolio manager and member of their investment committee, is an articulate, talented manager and we enjoyed a lengthy conversation about the lack of impact Detroit and Puerto Rico had on the space, and his reasons for believing Illinois as a state is not likely to default (but Chicago as a city and Cook as a county is not quite in the same place). Municipals are a tricky asset class. Much of the spread over comparable Treasuries has contracted making them somewhat less attractive, but still in a “fair value” place (vs. too cheap or too rich). The steepest part of the yield curve is still from years 3 to 10. It flattens a lot after that (greater increase in yield from year 3 to 4, 4 to 5 and from 5 to 6, etc., whereas the jump in yield from year 15 to 16, etc. is quite minimal). This is important because they do not believe anyone can forecast yield levels very well (in any aspect of the bond market), but they do believe they can manage the yield curve (the relationship of some maturities to another) quite well. High Yield Muni at fair value means credit risk matters, and we are conscientious of that. While $69 billion left muni mutual funds in 2010, only $25 billion came back. We think a lot of that money went to cash (not stocks), and is never coming back. I left with a greater appreciation for the work they do and the research process they engage around specific municipalities, unfunded pensions, tax policies, and much more.
Lowell Miller of Miller-Howard Investments is my mentor in the investment world, and the grandfather of dividend growth investing (as far as I am personally concerned). I treasure this relationship and am very proud of results created in dividend equities over the years. We discussed a number of things around future plans, positioning, strategy, product, and the like. He shared why there was no lapse – and I mean, none – in his conviction for midstream MLPs this summer. Because they have done their homework. They have done their research. And they have confirmation of the theses they were advocating. What the bears in the MLP space did not understand this summer was that MLPs are an asset-based company, just like real estate, utilities, etc., and the metrics by which some were lambasting them were utterly irrational. We do not know when the full recovery will come in asset prices but we feel very good about our positioning and tax swap plans and so forth.
Skybridge is always a treat. Troy Gayeski is a star in the hedge fund-of-funds space because he is diligent, disciplined, and committed to stellar fund selection and positioning (across top-down themes). They are looking to bring down portfolio beta around securitized credit, RMBS, and CMBS (various bond strategies), and lowering some of the Event-Driven equity manager allocations. We really covered a lot of highly technical and detailed “stuff,” but they remain firmly in the camp that the economy is okay but not great, which means no recession, but no robust growth until there are more pro-growth policies. We agree that a vigorous risk-on allocation will make more sense if and when we get more pro-growth policies out of D.C.
I will leave it there for now. I have significant information still to process for these blog entries, several more meeting still ahead, and a slew of portfolio and asset allocation decisions to make.
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