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Yeah, jeez, as of 6w ago the mighty VONG is similarly >39% in:
AAPL Apple Inc 10.52 MSFT Microsoft Corp 9.87 AMZN Amazon.com Inc 6.64 FB Facebook Inc Class A 3.92 GOOGL Alphabet Inc Class A 3.19 GOOG Alphabet Inc Class C 3.05 TSLA Tesla Inc 2.45
Further, because a given stock can have, say, 60% of its cap weight allocated to the growth index and 40% of its cap weight allocated to the value index, what it means when a stock has a large (or small) weight in the growth index is not straightforward. That company could be a larger (or smaller) company, or it could simply be more (or less) growthy than other stocks in the growth index. https://research.ftserussell.com/products/downloads/Russell-US-indexes.pdf
Given that six weeks ago the top ten holdings of VFIAX constituted 28% of the fund, it should be clear that the five named companies (six securities) could not now comprise 41% of the S&P 500.
Six weeks ago, those six holdings comprised 22% of VFIAX, and thus presumably of the S&P 500. As of yesterday (Sept 13), they accounted for 23% of the S&P 500. Per SlickCharts.
It is best not to take figures on blind faith, especially when they don't pass a laugh test.
In some senses the def of labile, esp under color of your recent analyses of weightings.
>> are not all that similar. Six weeks ago, the former had 45% of its holdings in the top ten, while the latter had "only" 28%.
Right, it ranges more widely than smaller sets, perhaps (have not checked the data); why I own / favor VONG, thanks to someone on this forum, perhaps Hank.
Oops! … The information I relayed yesterday in quoting from a subscription blog proved incorrect. A reader questioned author Bill Fleckenstein’s prior assertion and, to his credit, Bill published that exchange for his readers today and admitted the error was his.
Here’s an excerpt from today’s exchange:
“Q: Hi Bill
I was hoping you could help interpret the statement: "if you put a dollar into the S&P, 41 cents goes toward Apple, Microsoft, Google, Amazon, and Facebook" as those combined market caps don't reach up to 41% of the index (I see Mid 20s depending on the day), I just wanted to see what I'm missing and how to calculate this important point.
Thanks
Fleck (Bill Fleckenstein): That is because I made a mistake. That (41%) is the weighting for the QQQ, NOT the S&P. I just double-checked what James said. So, it was my error due to quoting the wrong index, not his.“ -
I really appreciate all the accurate feedback from mfo members the (errant) quote generated. I think Fleckenstein’s underlying point that a few big caps are responsible for most of the gain in the S&P is valid. It’s just not as extreme as he initially claimed.
Glad he corrected it. - But there is no joy in Mudville—
One of the portfolio stats that jumped out at me was that bond holdings only accounted for 1.4% of fund assets. I'm a bond novice compared to many here who are able to speak with incredible knowledge, but this fact certainly says much about Giroux's views on bonds. His main focus on bonds for a bit has been short-term high yield, so it seems he's even moved on from that area.
One of the portfolio stats that jumped out at me was that bond holdings only accounted for 1.4% of fund assets. I'm a bond novice compared to many here who are able to speak with incredible knowledge, but this fact certainly says much about Giroux's views on bonds. His main focus on bonds for a bit has been short-term high yield, so it seems he's even moved on from that area.
You are correct. Giroux has stated in his annual semi-annual reports (within past 1-2 years) that he views bonds as a terrible investment under current conditions. (Not an exact quote - but a close approximation). I don’t pretend to understand his methodology and how he keeps volatility as low as he does. But seems to work for him. Probably playing with some derivatives to hedge bets.
Added: Here’s a current source that has the fund about 10% cash and 18% bonds. A good guess is that most of that 18% is in very short term treasuries and by some analysts’ interpretation represent cash - accounting for a discrepancy among different break-downs.
In his previous interviews he mentioned that bank loans (or floating rate bonds) are attractive because of their high yield (3%) and short duration (1-2 years). Even though bank loans are rated junk, they are safer because they are high in capital structure in case of the banks defaulting on the loans. Also he mentioned that utilities are attractive and stable while offer 3-4% yield.
@Sven, Did you mean to say banks defaulting on [bank] loans? Was it Giroux’s or your characterization to call Technology equities as providing a barbell approach to defensive equities?
Thanks.
Edit: My original post was inadvertently addressed to @catch22 when it should have been addressed to @Sven. An inadvertent error on my part.
Look like it was invested in TRP money market. Considering losing 2% annually to inflation is a small price to pay. When the opportunity presented itself as March 2020 where S&P 500 index went down 30% within 2 weeks, the 10% cash will allow one buy stocks with 30% discount. The Fed came in to rescue the market and it fully recovered by September. By year end, S&P500 gained over 18% for the year. PRWCX managed to gain 18.2% in 2020 while holding 10% cash.
@catch22 Did you mean to say banks defaulting on [bank] loans? Was it Giroux’s or your characterization to call Technology equities as providing a barbell approach to defensive equities?
This is from someone else. My only note in this thread was related to the TIP ETF in reply to davidrmoran.
@Seven - I won’t get into the possible discrepancy on percentages - but you’ve done a very nice job summarizing Geroux’s current approach and thinking. Certainly sounds like his creative genius at work. Barbell formed from utilities on one end and tech on the other? OMG - I’ve never heard that one before.
Giroux’s annual reports are well written. His interviews confirm his sector positioning and buying strategies. At the height of the pandemic, I have cash but lacking the skills to take full advantage of the buying opportunity. That is why I hire a skillful manager such as Giroux.
BTW, barbell strategies have also been used by other well established fund such as Fidelity Contra and Vanguard Primecap.
@hank, my % allocation was obtained from the semiannual report dated on 6/30/21. So the values are dated by 3 months from those that you are reading today. The top 10 holdings listed on TRP website is dated as of 8/30/21.
Hi @Catch22, Pl accept my apologies. I corrected my previous post to correctly address it to @Sven. Please see my revision and If it is acceptable to you, please consider deleting your reply (quoting my previous post) and I will delete this post so the thread flows better for others. Thanks. BB
As an aside, I believe “bank loans” are ST, floating rate (secured?) loans given to companies that couldn’t float a regular bond/loan…NOT loans taken out by banks. Less interest rate risk, but more credit risk (which seems ok at this point in economic cycle)
In his previous interviews he mentioned that bank loans (or floating rate bonds) are attractive because of their high yield (3%) and short duration (1-2 years). Even though bank loans are rated junk, they are safer because they are high in capital structure in case of the banks defaulting on the loans. Also he mentioned that utilities are attractive and stable while offer 3-4% yield.
Okay, the calculation isn't perfect. I'm using the time frame from 1973-1989 and factoring out data from 1981-1990, while what should be factored out is 1981-1989.
Despite rising interest rates, despite inflation (which hit the energy sector - the raw material for utilities - harder than the economy as a whole), utilities didn't come off too badly.
(3 mo T-bill returns jumped from 4.07% in 1972 to 7.03% in 1973, generally remaining above 5% and moving into double digits at the end of the 70s. Inflation first broke 6% in 1973, roughly doubling the 1972 figure, roughly doubling again in 1974 to 11%, generally remaining about 6%, returning to double digits at the end of the 70s.) https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html
A broader point is that aside from an expectation of rising inflation and interest rates, the utilities sector is substantially different from it was in the 70s. Then it was heavily regulated. Because of that regulation, investors expected a nearly guaranteed rate of return and little appreciation. Though because of rapidly rising costs (energy prices), the industry often failed to achieve those "guaranteed" returns in the 70s.
Still, I'm not expecting another reduction in oil production (with commensurate price hikes) due to an Arab oil embargo after a war with Israel (1973) or due to a revolution in Iran (1979).
Since deregulation took off in the 80s, since power generation was separated from transmission, it's a completely different business environment. In the 70s, nuclear power was all the rage, and the industry benefited from the government covering plants in case of, um, mishaps.
Today, nuclear is declining, and other utilities have to bear the cost of their negligence. Such as PG&E:
In a news conference, Shasta County District Attorney Stephanie Bridgett announced the 31 charges, including 11 felonies, against the company. She said in July that her office had determined that PG&E was “criminally liable” for last year’s Zogg Fire, which burned near Redding. ... The filing also includes felony arson charges against PG&E for "recklessly igniting" three other fires, all occurring in Shasta County in the last year and a half before and after the Zogg Fire.
PG&E equipment has been found responsible for some of the most destructive wildfires in California history, including the 2018 Camp Fire in Butte County that left more than 80 people dead. More recently, PG&E reported to California utility regulators that its equipment may have been involved in the start of the Dixie Fire burning in Northern California.
Part of the responsibility for the near-collapse of the state’s electrical grid can be traced to the decision in 1999 to embark on the nation’s most extensive experiment in electrical deregulation, handing control of the state’s entire electricity delivery system to a market-based patchwork of private generators, transmission companies and energy retailers.
The utility industry over the past third of a century or so is simply not the same as the regulated, widows and orphans industry it was prior to the 80s.
@msf, If you drew a conclusion from your research about prospects for equity investors in utilities sector in a potential future inflationary period, please share / restate. Thanks.
I wonder, @msf, if the success utilities had starting in the 70s might be related to the southward and southwestward movement of the US population. As you correctly point out, ignoring climate change and an unswerving faith that the Colorado river would flow forever now are shown to be false assumptions and the utilities will pay the piper. I recall being gifted a very few shares of Pinnacle West many moons ago. In my ignorance I sold them after a few years. Had I known how to set up a DRIP program, those shares would have grown a small nest egg for our kids or grandchildren. The donor of the shares simply sent a stock certificate with no instructions included, an odd gift from an uncommunicative father-in-law. His stock picking, buying a utility serving the four corners states just before their huge growth in population, is unassailable. Of course, there are other “if only” stories many of us can tell.
Nice stuff. Thanks @msf for the comprehensive write-up. Particularly pertinent is the role of federal & state regulation which has undergone substantial changes over the years making comparisons of different periods difficult.
My understanding of some of the dynamics in play …
- Utilities tend to borrow a lot so that rising interest rates should diminish their profitability.
- Utilities appear to be substantially exposed to the energy sectors which one would expect should help during inflationary periods as energy prices rise (countering some of the damage from rising rates).
- Utilities own a lot of infrastructure which should appreciate in value during inflationary periods.
- While the utilities indexes may be confined to more traditional utility sectors, a fund may define utilities quite broadly. How broadly is anyone’s guess. However, 5g cellular, fiber-optic and satellite based connectivity are likely within some fund managers’ purview - making their investment products more responsive to technology advances than during the 70s and 80s.
- One wonders the extent to which the advent of self-driving vehicles may become intertwined with the utility sector, as these rely on constant internet connectivity.
- Utilities might also benefit from increasing use of EVs and the need for charging stations.
- The liability issue, which msf addresses, is a real wild card. We live in a much more litigious society than 50 years ago.
I was primarily suggesting that given substantial confounding factors, there's not much that can be inferred about the utilities industry from the way it behaved in the 70s. At least not without a lot of work and guesswork that I didn't provide.
One may not be able to say much even in broad terms. Giroux wrote in the last semiannual report that "utilities, in particular, have completely decoupled from Treasury and corporate bonds unlike at any time in the last 40 years."
Regarding utility funds investing in telecom and energy, most do tend to hold a healthy slug of these. The only fund I know of that hews to the traditional path is FKUQX (NTF many places), FRUAX (NTF, $100K min at TIAA, Firstrade).
If I'm interpreting portfolio data correctly from the TRP website dated 9/30/21, PRWCX equity allocation has increased to 75.68%.
Sector Allocation As a percentage of Total Net Assets As of 9/30/2021
INFORMATION TECHNOLOGY 14.33% HEALTH CARE 13.58% CONSUMER DISCRETIONARY 10.58% FINANCIALS 10.28% UTILITIES 7.19% INDUSTRIALS & BUSINESS SERVICES 7.04% COMMUNICATION SERVICES 5.97% OPTION 4.48% CONSUMER STAPLES 1.92% ENERGY 0.18% REAL ESTATE 0.13%
Top 10 Holdings MonthlyQuarterly Represents 38.51% of Total Net Assets As of 9/30/2021
Microsoft 7.02% Amazon.com 5.51% GE 4.48% PNC Financial Services Group 4.03% Yum! Brands 3.16% Thermo Fisher Scientific 3.11% Alphabet Class C 3.08% UnitedHealth Group 2.98% Marsh & McLennan 2.70% Humana 2.43%
I’ve looked at their site. Your list is accurate as far as it goes. But it appears Price lists fixed income holdings along with stocks in its publishec “portfolio” - with the following important exception:
“Numbers may not add up to 100% exactly due to rounding and/or the exclusion of reserves and other assets. Excludes cash and derivatives.”
So, the remaining 24.32% (not listed as part of the portfolio) likely resides in cash + derivatives.
One way to check this is to call up the complete list of portfolio holdings using another TRP link: Scrolling down to Amazon, one of their larger equity holdings, reveals that it’s listed right along with a number of bond holdings inside that “portfolio.”
There’s also language (somewhere in all that) to the effect that fund holdings will be publicly available 30 days after the end of a quarter. That’s seemingly at odds with the 9/30/21 date Roy accurately cited. I’m inclined to think that 9/30/21 date is meant to reflect the latest publicly available accounting. Could be wrong on that. In any case, it isn’t germane to the larger issue explained above.
Comments
AAPL Apple Inc 10.52
MSFT Microsoft Corp 9.87
AMZN Amazon.com Inc 6.64
FB Facebook Inc Class A 3.92
GOOGL Alphabet Inc Class A 3.19
GOOG Alphabet Inc Class C 3.05
TSLA Tesla Inc 2.45
VRGWX and VFIAX are not all that similar. Six weeks ago, the former had 45% of its holdings in the top ten, while the latter had "only" 28%. Data from M*.
https://www.morningstar.com/funds/xnas/vrgwx/portfolio
https://www.morningstar.com/funds/xnas/vfiax/portfolio
Further, because a given stock can have, say, 60% of its cap weight allocated to the growth index and 40% of its cap weight allocated to the value index, what it means when a stock has a large (or small) weight in the growth index is not straightforward. That company could be a larger (or smaller) company, or it could simply be more (or less) growthy than other stocks in the growth index.
https://research.ftserussell.com/products/downloads/Russell-US-indexes.pdf
Given that six weeks ago the top ten holdings of VFIAX constituted 28% of the fund, it should be clear that the five named companies (six securities) could not now comprise 41% of the S&P 500.
Six weeks ago, those six holdings comprised 22% of VFIAX, and thus presumably of the S&P 500. As of yesterday (Sept 13), they accounted for 23% of the S&P 500. Per SlickCharts.
It is best not to take figures on blind faith, especially when they don't pass a laugh test.
In some senses the def of labile, esp under color of your recent analyses of weightings.
>> are not all that similar. Six weeks ago, the former had 45% of its holdings in the top ten, while the latter had "only" 28%.
Right, it ranges more widely than smaller sets, perhaps (have not checked the data); why I own / favor VONG, thanks to someone on this forum, perhaps Hank.
Here’s an excerpt from today’s exchange:
“Q: Hi Bill
I was hoping you could help interpret the statement: "if you put a dollar into the S&P, 41 cents goes toward Apple, Microsoft, Google, Amazon, and Facebook" as those combined market caps don't reach up to 41% of the index (I see Mid 20s depending on the day), I just wanted to see what I'm missing and how to calculate this important point.
Thanks
Fleck (Bill Fleckenstein): That is because I made a mistake. That (41%) is the weighting for the QQQ, NOT the S&P. I just double-checked what James said. So, it was my error due to quoting the wrong index, not his.“
-
I really appreciate all the accurate feedback from mfo members the (errant) quote generated. I think Fleckenstein’s underlying point that a few big caps are responsible for most of the gain in the S&P is valid. It’s just not as extreme as he initially claimed.
Glad he corrected it. - But there is no joy in Mudville—
Added: Here’s a current source that has the fund about 10% cash and 18% bonds. A good guess is that most of that 18% is in very short term treasuries and by some analysts’ interpretation represent cash - accounting for a discrepancy among different break-downs.
TIP ETF (cash?) at +4.32% YTD
Regards,
Catcgh
bonds, 18% = 10.4% bank loans and 7.8% corporate bonds.
cash, 10%
Options, 1%
Stocks, 72%
Noted that Giroux is taking a bar-bell approach by holding high % of defensive sector such as utility (8.1%) while holding 16% technology.
https://prospectus-express.broadridge.com/summary.asp?doctype=semi&clientid=trowepll&fundid=77954M105
In his previous interviews he mentioned that bank loans (or floating rate bonds) are attractive because of their high yield (3%) and short duration (1-2 years). Even though bank loans are rated junk, they are safer because they are high in capital structure in case of the banks defaulting on the loans. Also he mentioned that utilities are attractive and stable while offer 3-4% yield.
Did you mean to say banks defaulting on [bank] loans?
Was it Giroux’s or your characterization to call Technology equities as providing a barbell approach to defensive equities?
Thanks.
Edit: My original post was inadvertently addressed to @catch22 when it should have been addressed to @Sven. An inadvertent error on my part.
BTW, barbell strategies have also been used by other well established fund such as Fidelity Contra and Vanguard Primecap.
@hank, my % allocation was obtained from the semiannual report dated on 6/30/21. So the values are dated by 3 months from those that you are reading today. The top 10 holdings listed on TRP website is dated as of 8/30/21.
Utilities will suffer as we enter the higher inflationary environment.
Over the indicated periods, $100 grew to:
Utilities: 1973-1989 $711 (7x), 1981-1990 $352 (3.5x) => 1973-1980 2x
Stocks: 1973-1989 $613 (6x), 1981-1990 $303 (3x) => 1973-1980 2x
https://www.latimes.com/archives/la-xpm-1991-05-20-fi-1567-story.html
Okay, the calculation isn't perfect. I'm using the time frame from 1973-1989 and factoring out data from 1981-1990, while what should be factored out is 1981-1989.
(Utilities did a tad better than the S&P500 in 1990, losing only 0.63% to the 500's 3.18% loss.)
https://www.bespokepremium.com/wp-content/uploads/2018/11/totalreturns.png
Despite rising interest rates, despite inflation (which hit the energy sector - the raw material for utilities - harder than the economy as a whole), utilities didn't come off too badly.
(3 mo T-bill returns jumped from 4.07% in 1972 to 7.03% in 1973, generally remaining above 5% and moving into double digits at the end of the 70s. Inflation first broke 6% in 1973, roughly doubling the 1972 figure, roughly doubling again in 1974 to 11%, generally remaining about 6%, returning to double digits at the end of the 70s.)
https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html
A broader point is that aside from an expectation of rising inflation and interest rates, the utilities sector is substantially different from it was in the 70s. Then it was heavily regulated. Because of that regulation, investors expected a nearly guaranteed rate of return and little appreciation. Though because of rapidly rising costs (energy prices), the industry often failed to achieve those "guaranteed" returns in the 70s.
Still, I'm not expecting another reduction in oil production (with commensurate price hikes) due to an Arab oil embargo after a war with Israel (1973) or due to a revolution in Iran (1979).
Since deregulation took off in the 80s, since power generation was separated from transmission, it's a completely different business environment. In the 70s, nuclear power was all the rage, and the industry benefited from the government covering plants in case of, um, mishaps.
Today, nuclear is declining, and other utilities have to bear the cost of their negligence. Such as PG&E: https://www.kcra.com/article/criminal-charges-pgande-zogg-fire/37724695
Such as the electric utility companies operating in Texas:
https://abc13.com/texas-griddy-electric-company-lawsuit/10987967/ https://www.nytimes.com/2021/02/21/us/texas-electricity-ercot-blackouts.html
The utility industry over the past third of a century or so is simply not the same as the regulated, widows and orphans industry it was prior to the 80s.
My understanding of some of the dynamics in play …
- Utilities tend to borrow a lot so that rising interest rates should diminish their profitability.
- Utilities appear to be substantially exposed to the energy sectors which one would expect should help during inflationary periods as energy prices rise (countering some of the damage from rising rates).
- Utilities own a lot of infrastructure which should appreciate in value during inflationary periods.
- While the utilities indexes may be confined to more traditional utility sectors, a fund may define utilities quite broadly. How broadly is anyone’s guess. However, 5g cellular, fiber-optic and satellite based connectivity are likely within some fund managers’ purview - making their investment products more responsive to technology advances than during the 70s and 80s.
- One wonders the extent to which the advent of self-driving vehicles may become intertwined with the utility sector, as these rely on constant internet connectivity.
- Utilities might also benefit from increasing use of EVs and the need for charging stations.
- The liability issue, which msf addresses, is a real wild card. We live in a much more litigious society than 50 years ago.
One may not be able to say much even in broad terms. Giroux wrote in the last semiannual report that "utilities, in particular, have completely decoupled from Treasury and corporate bonds unlike at any time in the last 40 years."
Regarding utility funds investing in telecom and energy, most do tend to hold a healthy slug of these. The only fund I know of that hews to the traditional path is FKUQX (NTF many places), FRUAX (NTF, $100K min at TIAA, Firstrade).
Sector Allocation
As a percentage of Total Net Assets
As of 9/30/2021
INFORMATION TECHNOLOGY
14.33%
HEALTH CARE
13.58%
CONSUMER DISCRETIONARY
10.58%
FINANCIALS
10.28%
UTILITIES
7.19%
INDUSTRIALS & BUSINESS SERVICES
7.04%
COMMUNICATION SERVICES
5.97%
OPTION
4.48%
CONSUMER STAPLES
1.92%
ENERGY
0.18%
REAL ESTATE
0.13%
Top 10 Holdings
MonthlyQuarterly
Represents 38.51% of Total Net Assets
As of
9/30/2021
Microsoft
7.02%
Amazon.com
5.51%
GE
4.48%
PNC Financial Services Group
4.03%
Yum! Brands
3.16%
Thermo Fisher Scientific
3.11%
Alphabet Class C
3.08%
UnitedHealth Group
2.98%
Marsh & McLennan
2.70%
Humana
2.43%
“Numbers may not add up to 100% exactly due to rounding and/or the exclusion of reserves and other assets. Excludes cash and derivatives.”
So, the remaining 24.32% (not listed as part of the portfolio) likely resides in cash + derivatives.
One way to check this is to call up the complete list of portfolio holdings using another TRP link: Scrolling down to Amazon, one of their larger equity holdings, reveals that it’s listed right along with a number of bond holdings inside that “portfolio.”
https://individual.troweprice.com/staticFiles/gcFiles/pdf/phcafq2.pdf
There’s also language (somewhere in all that) to the effect that fund holdings will be publicly available 30 days after the end of a quarter. That’s seemingly at odds with the 9/30/21 date Roy accurately cited. I’m inclined to think that 9/30/21 date is meant to reflect the latest publicly available accounting. Could be wrong on that. In any case, it isn’t germane to the larger issue explained above.