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M* Discussion with David Giroux

T. Rowe Price's David Giroux shares his thoughts about bond positioning, beaten-down Big Tech, and whether a recession is imminent.
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  • Thanks for posting that! I heard no new insights, though.
  • edited May 15
    M* MIC-Chicago 2022 is Mon-Wed and expect many similar interviews in the next few days. These interviews are useful even when new insights are not offered. They tell us what fund managers are doing now. Risk is they are talking their book but that is OK. Info published in fund and M* reports are weeks/months old.
    https://www.morningstar.com/events/mic
  • A few quotes from the interview.

    Giroux: First of all, I would say, if you think about the fixed-income sleeve of the CAF, we've never really been Barclays Agg kind of index. I know a lot of our peers are. We historically haven't owned a lot of Treasuries, we haven't owned a lot of mortgage-backed securities, and really—and many investment-grade corporates, we really don't own a lot of that. So, coming to this year, the largest portion of our fixed-income portfolio is floating-rate bank debt that is basically flattish on the year despite the equity carnage and the fixed-income carnage. I've never been a big believer that you have to have that Barclays Agg be your fixed-income allocation. We go where we think the best risk/reward is. We think bank debt is really, really attractive and high quality, high yield is also quite attractive on a long-term basis.

    Now, having said that, though, to your point, rates have risen dramatically. So, we have started buying Treasuries. This would be the third time in the last decade we started buying Treasuries. We bought Treasuries in '18; we bought Treasuries in '13; and we started buying Treasuries this year. Treasuries today are about 8% of our portfolio, and our cash level has gone down, both by adding the equities as well as funding those Treasury purchases. We're going to take the other side of the argument. We actually believe rates, if you think about it, a three- to five-year horizon are more likely to be lower than higher. And if you have that view and now you're earning 3% on Treasuries, on five-year Treasuries, it actually makes sense to own a little bit Treasuries, which we do now.

    Blue: Great. You mentioned coming into the year optimistic on floating-rate debt. Did you fund any of your Treasury purchases through that allocation? Or do you still have an allocation to floaters in that fixed-income portfolio?

    Giroux: Yeah, we haven't sold any of our floating-rate debt at all. Essentially, our cash position, I believe, coming into the year was high single digits, low double digits. And essentially, that's going down to 3% to 4% today. And again, that's funded the Treasury purchases as well as increasing our equity allocation to take advantage of the dislocation we've seen in the equity market year-to-date.
  • edited May 15
    A somewhat tounge-tied David Giroux. Perhaps knocked off-kilter by a fund down more than 11% in fewer than 5 months. “The fault Dear Brutus“ … lies in Amazon. Giroux doesn’t understand how their retail division can generate a loss. Summing up his feelings about Amazon: “Disappointed is putting it mildly.”

    His largest holding is now Microsoft. Likes Google a lot. Buying some intermediate or longer dated treasuries as he doesn’t see longer term inflation topping 3% - about what treasuries yield. I happen to agree with him that energy is risky. That puts both of us at odds with most of the investment universe right now.
  • edited May 15
    @hank tongue-tied, you meant. Ya, it was more work than usual to catch his drift, this time. He says he's not sold any of his floaters. Following his lead, I invested in floaters. It's held up pretty well, though down slightly. I've ended-up using that fund PRFRX as my cash hoard. I steal from it, like taking from Peter to give to Paul, buying equity funds, particularly PRNEX and PRISX. I had been REALLY heavy in PRFRX, so there's no pain involved for me by engaging in that switcher-oo. I have bonds via PRFRX, TUHYX, PRWCX, BRUFX. (Not counting the sweep account, which I tend to keep pretty well drained. Call it a character flaw.) Anyhow, I'm at 28% bonds, still. A big reduction from 60% bonds, pre-Poot-brain-invading-Ukraine. The spam hit the fan after THAT.
  • edited May 15
    @Crash. Thanks for catching the slip. If Giroux sounded off-beat it’s likely the high number of interviews over a few days causing it. He is generally very articulate. A short interview didn’t allow time to cover much.

    Glad you have an investment plan figured out / charted. I do not. A lot of things appear reasonably priced. But I don’t have an infinite amount of cash to invest. Plus - no matter how cheap things look, they can always get even cheaper. Momentum driven markets work on both the upside and downside.
  • Thanks for posting this! I thought his comments on Amazon were the most telling. He really slammed the company for lack of performance on the e-commerce side and also for lacking disclosure. @Hank @Observant1 if you are aware Of any other recent interviews with him please let us know. I always like reading Giroux.
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