Long M* Interview with PRWCX's David Giroux

rforno

Well worth spending an hour to listen to the podcast or skim the transcript. (This longtime PRWCX holder remains very pleased and comfortable with Giroux's investing philosophies & performance.)


David Giroux: 'What Are the Market Inefficiencies We Can Exploit?'

A two-time Morningstar Fund Manager of the Year winner on the benefits of concentration, the attractions of utilities and BB bonds, and his team's focus on "return on time spent."

https://www.morningstar.com/podcasts/the-long-view/95

Sven

Thank you for the very informative interview. Unfortunately, the fund is closed to new investors.

rforno

Hi Sven - yes, I thought that was long-since general knowledge by now. Sorry about that ... but his insights/views are one of the few in the industry that I respect and pay a bit more attention to.

Sven said:

Thank you for the very informative interview. Unfortunately, the fund is closed to new investors.

Sven

I have invested with him since the inception. Giroux was very generous with his time that revealed his stock picking process. Having close to 20% cash in Feb 2020 allowed him to pick up good companies at low prices. Also took lots of guts too. As he said the fund is aimed to deliver good return (S&P500 like) with a lower risk over a market cycle.

bee

Comparison with VFINX since 1987...mission accomplished...

Sven said:

As he said the fund is aimed to deliver good return (S&P500 like) with a lower risk over a market cycle.

Comparison to the S&P 500

Sven

Thank you. I was going to plot the comparison, but you beat me to it. The risk aspect over time is what the fund stands out.

FD1000

PRWCX is one of the best risk/reward moderate allocation funds in the last 5-10-20 years.
VWIAX is one of the best risk/reward conservative allocation funds in the last 5-10-20 years.
PIMIX is one of the best Multi sector bond funds 2008-2018.

So, when they tell you can't get FREE LUNCH, I have eaten free lunch for over 20 years.

Defining free lunch:
when you get better performance at similar SD.
when you get similar performance at lower SD.
And the best is...when you get better performance at lower SD.
Example for the third choice...PV(link) PRWCX vs SPY since 2000. Sharpe+Sortino are also good indicators.

MikeW

@rforno. Thanks much for sharing this. .i wish I could buy his fund. Any key takeaways you can summarize?

sfnative

He suggests buying a utilities ETF. His thinking on that point is way ahead of mine . . . .

rforno

Hi Mike - unfortunately I don't have the cycles right now to offer a detailed summary, but the transcript is fairly easy to skim. I do remember he favors utilities as a capital appreciation play right now, though. (I hold several, so this was somewhat confirmation bias to me)

MikeW said:

@rforno. Thanks much for sharing this. .i wish I could buy his fund. Any key takeaways you can summarize?

MikeW

Oh great thanks very much...didnt see there was a transcript too in addition to the recording. Thx for the input @sfnative and @rforno

Crash

Giroux: "...So, this is a time to be short duration in your fixed-income portfolio. And if you're going to take duration risk, take duration risk in your equity sleeve, not in your fixed-income sleeve. Duration risk in equities is really cheap, given how attractive utilities are priced today relative to investment-grade or Treasuries...I manage the portfolio because I own a lot of it, it's my largest holding, my family's largest holding, it's my friend's largest holding, and I want to do the best job I possibly can for them. That's the only thing. And so, I build the portfolio today, as in the past, that again tries to achieve the objectives that we're looking for: really good risk-adjusted returns, being contrarian in certain areas of the market, likes or doesn't like, having a short duration in the portfolio. If I were not employed at T. Rowe Price and I was trying to build a portfolio, it would look a lot like the portfolio we have today..."

Crash

That was some great shit, thank you. I was especially keen to read-up on his "take" regarding GE. Pretty amazing.

davidrmoran

half the equity holdings are short? and mostly corporate bonds? (per M* holdings)

Crash

Tell me where you see that, David?
Asset Allocation
–100%–50050100
Asset Class Net Short Long Cat. Index
U.S. Equity 64.65 0.27 64.92 47.07 34.65
Non-U.S. Equity 2.37 0.00 2.37 12.22 25.85
Fixed Income 19.30 0.00 19.30 36.49 38.26
Other -0.88 0.88 0.00 1.99 1.04
Cash 12.36 0.00 12.36 5.92 0.00
Not Classified 2.20 0.00 2.20 0.85 0.20
Fund as of Dec 31, 2020 | Category: Allocation--50% to 70% Equity as of Dec 31, 2020 | Index: Morningstar Mod Tgt Risk TR USD as of Jan 31, 2021 | Source: Holdings-based calculations.

....Well, that came out looking like a complete snafu. Screenshots need to be made simpler for those like me.
*********************************
blob:moz-extension://bc5f8622-b739-744f-92c7-a121e7d65862/15f8c62b-6b42-8c47-9a10-c08c4e6cc059

Derf

@Crash : " Screenshots need to be made simpler for those like me."
+1
Stay Safe, Derf

bee

Paul Massaro Article on Fixed Income:
uncovering-opportunities-noninvestment-grade-credit

On Duration Risk:

... if you're going to take duration risk, take duration risk in your equity sleeve, not in your fixed-income sleeve. Duration risk in equities is really cheap, given how attractive utilities are priced today relative to investment-grade or Treasuries

On Holdings:

But you can't outperform by 400 basis points a year or 300 basis points per year if you have 100 stocks. It's very, very hard to do that. You really need to be a little more concentrated.

TRP's Floating Rate Fund = PRFRX

Market inefficiencies...
GARP-y Stocks = Growth At Reasonable Price
-13% of the S&P 500 (according to Giroux)
https://investopedia.com/terms/g/garp.asp

I think what drives in many respects the multiple companies is a little bit supply and demand. So, the reason why this 13% of the S&P 500 that I call GARP, trades where it does, and it should trade higher, is that a value manager will often look and say, Well, these companies, they trade for 10% or 20% premium to the market, that’s too expensive, so I can't invest in those stocks. Growth manager says, you know what, these companies, they're only growing organically like 4% or 5% organically. I want to own companies that are growing 10% organically.

So, in many cases, there's no natural buyer for these companies. So, that depresses their valuation to a level where, again, if you think about the market, the market, typically, in non-recession years, grows earnings at 6% to 7% kind of clip, gives you a 2% dividend yield. So, for a small premium to that, which you'd able to generate, is find the companies that are growing earnings at 10% plus, maybe a little bit more dividend yield, and have much less downside risk, because there's an inefficiency. The two big market participants kind of shunned these companies a little bit. So, what happens is, over time, they just compound wealth, and in many cases, the market becomes a little bit smarter over time and says, Oh, it used to trade for 18 times earnings, but it's actually a really good company, and you should trade for 20 or 21 times or 22 times. So, you get the compounding of the earnings and the dividend and usually, like the multiple expands.

davidrmoran

@Crash

http://portfolios.morningstar.com/fund/holdings?t=PRWCX&region=usa&culture=en-US

Crash

@davidmoran Terminology and abbreviations are killing me. Which line item? Please?

BenWP

I see the figures you’re talking about @davidmoran. What are the « Other Positions »  held both long and short, what are the 38 Stocks held short and where is there an accounting of them, either in M* or the TRP disclosure of fund holdings? For a huge fund that holds only 42 long stocks, I’d like to know the relative weight of the shorts. I’m not in this fund, FWIIW.

JonGaltIII

So a simpleton like me ... reads the paragraph on ‘Duration Risk” that @bee references above... and where Paul says to ‘take duration risk in your equity sleeve” ... and my take away is: be careful with long term bond funds and if you have a longer investing horizon/duration, stick with equities.

But then I realized that I’ve never heard of equity duration risk. What is it? It turns out it’s quite complicated: https://www.ipe.com/equity-duration-how-viable/17520.article

This interview is really educational and the posts by bee too.

Crash

...Ah, OK, now. I see it now. That's a lotta shorts. Yes. I'd be in over my head, managing such a portfolio. I trust Giroux. On a risk-adjusted basis! He's got his secret sauce. And the shorts would account for the fact that the fund doesn't always rise along with the Market on some really good days.

MikeM

@Crash, you have it right. I've never known this fund to short by any significant percentage if at all. It is also my largest fund holding.

David's info would classify this as a market neutral fund which it certainly isn't. Per Schwab, the portfolio has about 1% short in equity and other, which I'm guessing is typical of any fund. It is fairly concentrated in that it's top 10 holdings make up about 57% of assets (assets = bonds and equity), 31 % of that being in equity. But to me that is not outrageous.

I don't really know where puts and sell call options list-out as long or short holdings, but could that be some of the confusion? Or could the short holdings be leveraged bond holdings. Maybe @msf might know.

Crash

Thanks, @MikeM. It is my largest holding, too.

bee

@JonGaltIII...maybe even simpler still (@bee has a bee size brain)...compare your stock (equity) dividends to bonds. If I understand Giroux correctly, he tries to GARP-y his equities to reduce downside equity risk and yet achieve equity dividend returns that are better than bond coupons.

davidrmoran

>> David's info would classify this as a market neutral fund which it certainly isn't.

Huh?

people, at the link I posted it is number of positions, not dollars, 42L to 39S.

@Crash, go look for Stock Holdings (Long) and the same (Short)

and then below that click the Bond View tab, right next to the default Equity View, and sum the % Portfolio Weight column.

It is startling that so many post and rave about this fund month after month and no one has delved its composition --- can it be ? I do not own it and don't care and am not fully sure of the significance of any of this. msf delves prospectuses all the time and this is not even that, just what's available, publicly, on M*.

fundfun

The VOYA version sub advised by David is still open and pretty cheap https://www.morningstar.com/funds/xnas/itcsx/quote

davidrmoran

+1 and ty

For the last year it seems about the same as (a hair worse than) 60-40 VONE-BIV, and a hair better than AOR. Including downside, on first glance.

May look at other and longer periods to see the value Giroux adds.

carew388

VOYA version appears to be an annuity fund;not available for sale at the 5 brokerage platforms I reviewed.

stillers

http://financials.morningstar.com/fund/purchase-info.html?t=ITCSX&region=usa&culture=en-US

Excerpt:

Brokerage Availability ITCSX
Comerica Bank
Securities America Inc.
ING 401(k) Adv
Shareholders Services Group
Pershing FundCenter
TradeStation Securities
RBC Wealth Management-Network Eligible

fundfun

Stillers, where did you get that? The newer version of Morningstar doesn’t have that as far as I can tell.