On December 31, 2019, Oelschlager Investments launched the Towpath Focus Fund (TOWFX). The fund invests in 25-40 domestic stocks regardless of market capitalization. The fund is managed by Mark Oelschlager.
In general, we intend Launch Alerts to occur within six weeks of a fund’s launch. We entirely goofed up the Launch Alert for Towpath because we were looking for it under its preliminary name, Oelschlager Equity. As a result, we entirely missed the launch and the fund’s first eight months of existence. Regrets for the slip!
What do they do?
Towpath is a concentrated, all-cap equity fund. The portfolio currently holds 38 securities. About 11% of the portfolio is invested in non-US stocks. Portfolio construction begins with macro-level assessments of the economy, proceeds to analyses of industries and sectors, then ends by buying and holding the most attractive stocks in the most attractive sectors. Mr. Oelschlager has a long and adamant tradition in favor of buying-and-holding just a few best-of-class stocks, so one might anticipate turnover in the single digits.
Why might you care?
Mr. Oelschlager served as manager of Pin Oak Equity Fund (POGSX) from 2005-2019, initially as a co-manager with James Oelschlager and Donna Barton. Beginning in June 2006, he had sole responsibility for the fund. Mr. Oelschlager also managed or co-managed five other funds (three Oak Associates and two sub-advised funds for Saratoga Capital Management), served as the co-CIO for Oak Associates, and was responsible for about 700 million dollars in separately-managed accounts. In 2019, Mr. Oelschlager and his wife, Tina, who served as a Relationship Manager for Oak Associates, launched Oelschlager Investments together.
The Oelschlagers demonstrated to the SEC that the strategy he pursued at Pin Oak is identical to the Towpath Focus strategy; as a result, they are able to include Pin Oak’s performance record in their current prospectus.
Our 2017 profile of Pin Oak Equity pointed to the fact that in the years following Morningstar’s decision to eliminate analyst coverage of the fund, it continued to club its peer group. Our bottom line for that fund:
“Beating the benchmark,” Mr. Oelschlager notes, “is not an easy endeavor, but there are managers who do so.” He and his colleagues at Oak Associates are among that small crowd. The question for investors is, are you actually prepared for a fund that beats the market? In a world bereft of wizards, wands and unicorns, higher long term gains will be accompanied by higher short-term volatility. If you’re the twitchy sort, who checks his portfolio daily and stays awake at night if the Dow drops 300 points, you shouldn’t be here. If you check your portfolio rarely and see today’s market declines as an excellent source of tomorrow’s market gains, you owe it to yourself to take Pin Oak seriously.
While Mr. Oelschlager has owned various growth stocks, he’s not a blind devotee of the “growth at any price” style of investing that’s currently in vogue. He writes,
Growth stocks have continued to be the darlings of the market … all this outperformance has had an effect on growth stocks’ valuations, which have been pushed to high altitude. When you hear “growth stocks” you may think of the big ones, such as Google and Facebook, but the mega-cap growth companies are actually more reasonably priced than their smaller, lesser-known brethren. Empirical Research Partners tells us that the 75 companies with the best growth profiles (“big growers”), as an equally weighted group, currently trade at a relative (to the market) price/earnings ratio higher than anything seen over the last 68 years – higher even than in 1999, the peak of a growth-stock bubble.
As with all bubbles, this growth stock one has a compelling story behind it … But even a great story can be carried to an extreme, and we believe that is what is happening now.
We do own positions in a couple of the big growers that are trading at what we believe are reasonable valuations, but our current focus is on the other end of the growth-value spectrum, even more than usual. One reason that the growth stocks have such a high relative multiple right now is that much of the rest of the market is so cheaply priced … Given the extreme valuation discrepancies in the market, it’s “High Time” the market’s leadership changed. Our focus remains not on what is hot now, but what will pay off over the long run. (2nd Quarter Market Commentary, July 2020)
He described his portfolio positioning as “the most conservative positioning ever at the start of the year; the clear excess of enthusiasm and risk of recession made it appropriate to be more conservative than usual.” The market tanked then, of course, turned sharply higher. Mr. Oelschlager adjusted the portfolio but maintained a pretty skeptical attitude. Not “negative,” just skeptical. He notes, “Some people are frustrated by crazy markets, but I kind of like it. The market is pretty darn efficient at valuing things; high volatility gives you lots of deviation between a true value and current price, hence lots of opportunities for long-term gain.”
One of the nice things about smart, experienced managers is that they’ve got better impulse control than the rest of us. While the Robinhood investors are getting buzzed on Tesla stock, with its p/e ratio of 333, Mr. Oelschlager has been buying the Intels, eBays, and BNYs of the world, classic quality growth stocks that have been (temporarily) relegated to the dusty world of value investments. Patience and caution have worked for him in the past; we’ll watch to see how they play out now.
The administrative stuff
The institutional shares carry a $2,000 minimum. That’s reduced to $1,000 for accounts set up with an automatic investing plan. The expense ratio, after waivers, is capped at 1.10%.
The fund’s website is rich though idiosyncratic. It lacks the polish typical of many modern sites: stuff that slides in, flashes, morphs, and blinks. That said, the site is clean, easy to navigate, and uncluttered. The text comes across as candid and unfiltered; the “our principles” section is a list of 19 personal reflections about life and business. The Oelschlagers are anxious to do a good job with the site; drop by, read, reflect, and then drop them a note with your questions and reactions. You’ll make a difference when you do!
