questions for Brian Yacktman, YCG Enhanced (YCGEX) Just as a quick update:
we had a very long talk that covered a lot of ground.
The shortest version of his investment strategy is to buy and hold "global champions," which he defines as companies whose pricing power is supported by a network effect. A simple example would be MSCI. The more that investors get used to seeing MSCI benchmarks for their investment products, the more valuable the MSCI brand becomes. That means that more firms will have an incentive to use MSCI and MSCI will have the ability to raise fees as above-market rates.
"Global champions" are good compounders, because they tend to be high quality businesses committed to sustaining long-term relationships with clients (which is what accounts for the consistent and consistently rising income flow).
Options are a small but valuable part of the portfolio. The casino mentality that we see in the equity market also rules the options market; lots of people are trying to use options to create leveraged bets in the hopes of getting rich quick. As a result, options sell as a premium. He reports that the long-term return of equity options is about 200 bps above the long-term return of equities. He might buy an option on a stock they were already thinking of buying or sell one on a stock they were already thinking of selling. The net effect is cheap upside in the one case and cheap downside protection in the other.
The apparent over-exposure to the financial sector is sort of illusory. A bunch of "finance-lite" companies, such as MSCI, FTSE, insurance brokerages, payment processors, operate as virtual global duopolies with low capital costs, a network effect that serves as a barrier to entry and consistently growing income. They don't have a lot of interest rate / credit risk exposure but do get classified as "financials."
Finally, his strategy is to remain fully invested because he's not good at timing the market and doesn't believe anyone else is, either. He holds a lot of cash occasionally, but only when the returns on cash exceed the projected returns on stocks. (He cited 2007 as an example.) The mantra is "if you're looking to buy great companies with good long-term prospects, the best time to invest was ten years ago, the second-best time is now."
Thanks, too, to Dennis Baran for ferreting some of this stuff out in advance of the interview!
For what interest that holds,
David
PDI And PCI: An Update To The Greatest Bond Funds Of All Time https://seekingalpha.com/article/4325257-pdi-and-pci-update-to-greatest-bond-funds-of-all-timePdi And PCI: An Update To The Greatest Bond Funds Of All Time
Feb. 21,
2020 7:00 AM ETPIMCO Dynamic Credit Income Fund (PCI), PDIPGP, PHK, PIMIX...
The NAVs have done better in the last 30-45 days as the dollar has rebounded a
gainst the euro and pound. PDI's NAV was ranked 16th out of 22 last year.
They are defensively positioned within traditional corporate credit and investing in areas of the economy that they feel offer more downside protection.
While PCI remains a key income generator for my portfolio and the Core Portfolio on Yield Hunting, we have not been adding to it.
We have been saying that the best days for these funds are behind us. However, that is not to say they aren't still great core pieces of my portfolio.
The NAV for us will be key. If we feel the NAV is no longer outpacing the distribution on a monthly basis, we could be re-assessing our position in the shares
Thx Catch 22 for the pdi recs..bought it last yr and very happy w it mama portfolio
