Why is Portfolio Manager Charlie Dreifus Bullish About His Portfolio?
article , video 11-29-2016

Why is Portfolio Manager Charlie Dreifus Bullish About His Portfolio?

Why does Portfolio Manager Charlie Dreifus feel positive about his bottom-up, absolute value approach and his portfolio?


Steve Lipper: How is an absolute investor finding opportunities in a high-priced market?

Charlie Dreifus: I feel very positive about my portfolio. Though the number of names shrinks because the pool of acceptable candidates to replenish the portfolio is very meager, whereas the valuations keep driving things up and I end up selling.

The portfolio has the traditional margin of safety. The absolute return, the cap rate, the return a buyer would receive is well over 10% these days on the portfolio. And the junk bond, in terms of sort a vague notion of cost of capital, is down at 6.25 or less. So there's a huge spread. That doesn't occur on a sustained basis all that long.

So while I do see the potential of a meaningful sell off in the market; I do think the portfolio should respond as it has most often in the past.

Steve: So let's talk about what scenario that you're leaning towards today that you have found a collection of value?

Charlie: My approach is bottom-up so I take direction from the market rather than forming a macro view and then trying to invest in it. So when I screen the data and apply all of the characteristics and disciplines that we utilize, the sector that comes up most often in several names, are in the furniture area, both manufacturers and retailers. There seems to be a disconnect in the valuation given the economy.

In furniture we have the dynamic of housing doing well, employment doing well, disposable income really very strong. So all of the tailwinds are in place for furniture to do reasonably well.

Steve: So, let's go to the other side. What's an area where you're leaning away from?

Charlie: Well, areas where there isn't brand recognition, where it's vulnerable to the tremendous amount of over-storing, which will take years if not decades to remedy. So, we have all of these brick and mortar retailers competing to get the attention of consumers and they're doing that through promotion, margins being squeezed. And this is particularly apparent in the soft goods lines.

Important Disclosure Information

The thoughts and opinions expressed in the video are solely those of the persons speaking as of October 13, 2016 and may differ from those of other Royce investment professionals, or the firm as a whole. There can be no assurance with regard to future market movements.

This material is not authorized for distribution unless preceded or accompanied by a current prospectus. Please read the prospectus carefully before investing or sending money. Smaller-cap stocks may involve considerably more risk than larger-cap stocks. (Please see "Primary Risks for Fund Investors" in the prospectus.)



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