October 1, 2024 • 32 mins
Capital deployment has been increasing as companies flush with cash ratchet up share buybacks and dividend payments. On this episode of Inside Active, host David Cohne, mutual fund and active-management analyst with Bloomberg Intelligence, along with co-host and BI sector and small-cap strategist Michael Casper, spoke with Integrity Viking Funds CEO Shannon Radke and Chief Investment Officer Michael Morey about the investment process behind the Integrity Dividend Harvest Fund (IDIVX). They discuss Integrity’s three-tiered-goal system of evaluating companies, and the metrics they use for screening. They also examine dividend sustainability and why classic value investing still has a place in investors’ portfolios.
See omnystudio.com/listener for privacy information.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:12):
Welcome to Inside Active, a podcast about active managers that
goes beyond sound bites and headlines and look steeper into
their processes, challenges and philosophies and security selection. I'm David Cone, I,
lead mutual fund on active research at Bloomberg Intelligence. Today
my co host is Michael Casper, small cap and sector
strategist at Bloomberg Intelligence. Mike, thank you for joining me
(00:33):
today as my co host.
Speaker 2 (00:35):
Thanks David.
Speaker 1 (00:36):
So, there was a note published yesterday by Gina and
Wendy that I wanted to ask you about. You know,
they mentioned stock buybacks have increased during the summer, you know,
wild dividends have risen. Why is capital deployment increasing?
Speaker 2 (00:50):
Well, there's two big factors at play. The first is
that cash is at or near all time highs if
you include financials, if you take out financial in real estate,
you actually get a much more muted picture, but still
compared to the pre pandemic period. We're looking at S
and P five hundred companies flush with cash right now,
(01:12):
and they're starting to use that in various ways. Buybacks
has been the main way they've been deploying capital.
Speaker 3 (01:18):
Recently.
Speaker 2 (01:19):
In the second quarter, buybacks jump thirty four percent from
a year ago for S and P five hundred companies.
I think part of that has to do with some
of the volatility that there wasn't in stocks during the
second quarter. You know, companies prefer to back cheap or
buyback stocks when it's cheap, But a lot of that
does have to do with the high cash positions and
kind of trying to boost their stocks. Second of all,
(01:42):
dividends are right about on the pre pandemic norm now
in terms of payout, and CAPEX has really been surging.
Capex has been one of the main ways that that
companies have been deploying capital, and a lot of that,
of course is coming from tech and their AI spending,
but in general, it all comes back to how big
(02:04):
the cash positions are for S and P five hundred
companies right now.
Speaker 1 (02:07):
Well, as we talk about capital deployment and dividends more specifically,
i'd like to bring on today's guests. Shannon Radke is
CEO of Integrity Viking Funds and senior portfolio manager for
a number of the firm's mutual funds, including the Integrity
Dividend Harvest Fund, which is a ticker of IDIVX. Also
joining us is Michael Moriy, chief investment officer Viking Fund
(02:29):
Management and co portfolio manager on a number of the
firm's funds. Shannon, Mike, thank you so much for joining
us today.
Speaker 3 (02:35):
Thank you guys for having us.
Speaker 1 (02:37):
So I'd like to start off hearing more about your backgrounds.
So we'll start with you, Shannon. How did you get
your start in the investment industry?
Speaker 3 (02:44):
Sure, I guess my.
Speaker 4 (02:45):
First exposure was an economics class in high school where
actually each student got to build their own stock portfolio,
which I thought was pretty cool. That kind of led
me to pursue a finance degree at the University of Northakota,
where I fortunately there were more investment classes there economics
(03:06):
classes and so on, so I continued to enjoy I
guess that field of interest. I also joined a student
investment club at und Then, you know, as I was
approaching graduation, I decided my preference was to be close
to home in mine at North Dakota, which left my
(03:26):
options at the time I thought fairly limited. I was
looking at potentially working for a bank, bank, trust department,
or brokerage firm, and that's when I heard that Bob
Wallstead from mine at I had just started up the
company that would ultimately become Integrity Mitual Funds, so the
(03:48):
timing could not have been better. On that I was
able to go back to my hometown and mine not
go to work for Bob in the fall of nineteen
eighty eight and start pursuing my investment career there. I
actually started out in sales, and shortly after we opened
our first fund, which was actually at North Dakota Tax
(04:10):
Free Fund, we decided to bring in house the shareholder servicing,
fund accounting, and fund admin and Bob needed a guy
to run that, so I became operations manager at the
time we brought that in house. Eventually he promoted me
to COO where I worked directly with the various department heads,
(04:30):
including the PMS, which I very much enjoyed. Then in
nineteen ninety eight, I left the firm to kind of
pursue a dream and open my own firm. I was,
I guess thirty one years old at the time, so
it was pretty big undertaking for me. That's when I
(04:51):
got to work on writing the registration statement for Viking
Mutual Funds, and that really was a big undertaking, big
process when you register a group of mutual funds with
the SEC. You know, it's not just the funds that
you're registering. You need to create and register an investment advisor.
(05:12):
You need to create and register a proper dealer to
service underator for the funds. And we also decided to
create and register a transfer agent so that we could
do the shareholders servicing and fund of coning in house.
So that took quite a period of time, you know,
between writing the prospectus, the SAI, which both go in
the registration statement, the various exhibits, the agreements between the
(05:35):
funds and the service providers, heck of a lot of
work in a pretty big document that actually ends up
getting filed with the SEC. So at Viking we opened
our first fund in nineteen ninety nine.
Speaker 3 (05:49):
And it was just a tremendous experience for me. I
think I've worn.
Speaker 4 (05:53):
Every hat you can imagine in the mutual fund industry.
So I was actually seeing shareholder transactions, calculating net asset
values for the funds, creating and filing the sem annual
reports to shareholders, filing various other reports with the SEC,
(06:16):
monitoring for compliance, doing the portfolio management, and they even
helped out the wholesalers from time to time. So I
think that experience at Viking really helped to make me a.
Speaker 3 (06:27):
Better CEO today because I really.
Speaker 4 (06:31):
Understand the inner workings of the entire mutual fund management company.
Speaker 3 (06:36):
So as we move forward.
Speaker 4 (06:38):
In two thousand and nine, came back together with Bob
Wolstead and we merged Integrity and Viking together to form
Integrity Viking Funds.
Speaker 3 (06:47):
And that's how we have our name today.
Speaker 4 (06:49):
And then at the time that we came back together,
I believe our AUM was sitting around two hundred and
fifty million. Today we are between nine hundred million and
a billion, so we have grown. We're pretty proud of
that growth. As you may know, it's pretty difficult in
the day and age for active managers to grow their
assets to actually have net inflows.
Speaker 3 (07:11):
Buy and large.
Speaker 4 (07:12):
On average, active managers have had outflows for many years off,
not decades, with a lot of money going into index
funds and ETFs.
Speaker 3 (07:21):
So pretty pleased with where we're at.
Speaker 4 (07:24):
You know, we often hear people getting pretty surprised when
the year we're operating out of North Dakota.
Speaker 3 (07:30):
They're like, what you're where?
Speaker 4 (07:34):
But I always say, why not? We have great people
in North Dakota. They have a great work ethic. We
have excellent universities. Und where I went in Grand Forks,
Minor State University is a great university. It has an
excellent finance program. Many of our employees have come from
my state, so we're lucky to have that university here.
(07:56):
We often take interns from the U. I would say
about half of them come employees, so happy to be
here working out of mine at We also.
Speaker 3 (08:04):
Have a lot of employee ownership.
Speaker 4 (08:06):
I think that's important for a company to have your
employees have skin in the game.
Speaker 1 (08:10):
Nice Mike, How about yourself.
Speaker 5 (08:12):
I was excelled in math even from a young age,
you know, and growing up my father was a commodities broker,
so I've always found investments intriguing. My first job I
had in high school was at a bank, so it
was smaller number of stuff, but still, you know, just
very intriguing.
Speaker 3 (08:30):
So my mind has always been kind of around numbers.
Speaker 5 (08:33):
When I went to college, you know, I attended my
first year, I didn't know if I still wanted to,
you know, pursue finance.
Speaker 3 (08:42):
Geology had really intrigued me.
Speaker 5 (08:45):
So my freshman year I took a couple of different
classes in each of those respective fields and ultimately decided
on finance. And that's at minut State University where I
attended college. I know Shannon did mention their finance program.
I'd like to give a shout out to Jerry Sti.
I think he was a professor that really pushed me
(09:07):
over the edge and got me fully committed to finance.
Senior year at Minus State University, I did an intern
at Integrity Viking Funds and began working when I graduated
in twenty ten at Integrity Biking.
Speaker 1 (09:24):
You know, I think we should, you know, kind of
really talk about the Integrity Dividend Harvest Fund. I think
it's an interesting fund. What is the process or the
investment process that you guys go through to manage this fund?
Speaker 3 (09:37):
Well, you know, the.
Speaker 5 (09:39):
First kind of step of the processes is defining the
goals of the portfolio. So you know, we have a
three tiered goal system where we're trying to maximize the
current income as well as maximize the growth of that
income to our shareholders, all while minimizing volatility. And we
(10:00):
feel this recipe and does an exceptional job providing our
shareholders superior risk adjusted returns you know, throughout the full
cycle of the market. I think it's something that's kind
of gotten lost in this era or decade plus, you know,
period where growth has reigned supreme, you know, where the
(10:21):
classic value investing you know.
Speaker 3 (10:24):
Still has a place in people's portfolio.
Speaker 5 (10:27):
And on going forward basis, you know, I think it's
going to fully you know, solidify itself, you know, as
as you know, a core of a portfolio.
Speaker 3 (10:37):
You know, if you look.
Speaker 5 (10:37):
At history, value has a very strong track record of
outperforming growth, you know, despite the recent performance of growth.
So we feel that value is very important and dividend
investing is a true component component of value. So with
the defined portfolio goals, you know, we we really have
(11:00):
size on maintaining our investment style and our discipline regardless
of market conditions. So we feel that removes a lot
of emotions from what we do and it's more you know,
factual and fundamental driven.
Speaker 3 (11:15):
That would be our process. You know.
Speaker 5 (11:18):
From there, we run the equities through our key portfolio
metrics screen which will ultimately define our universe.
Speaker 3 (11:29):
You know.
Speaker 5 (11:29):
So the metrics that we are looking at in our
initial screen are beata the current yield of a company
the number of years a company has consecutively increased its
dividend and market capitalization.
Speaker 3 (11:45):
So those are our four key.
Speaker 5 (11:46):
Portfolio metrics and those are used to define the dividend universe.
And once we have our dividend universe, we put it
into a tiering system. You know, so companies that meet
all four of the requirements of the metrics that we're
looking for would be considered a Tier one company. Tier
two company would meet three out of those four metrics,
(12:08):
and then a Tier three company would only meet two
out of the four metrics.
Speaker 3 (12:13):
And by having a blend of Tier one.
Speaker 5 (12:16):
Two, and three companies from our dividend universe provides us
with ample flexibility to meet the goals of the portfolio. Last,
once we have our universe defined, we get into security selection,
and this is completely driven by how each individual company
contributes to the goals of the overall portfolio. Two great
(12:36):
examples of how we use our process and how a
company can get positioned into the portfolio would be Abby.
Speaker 3 (12:47):
You know, we've owned this company almost sense inception.
Speaker 5 (12:51):
It caught our radar because of its extremely attractive dividend yield,
its impressive growth rate of its dividend, which was largely
driven by their blockbuster drug heme era, their ability to
integrate and expand their pipeline, you know, to offset the
loss of exclusivity.
Speaker 3 (13:11):
But when you look.
Speaker 5 (13:11):
At how it fits into our process, it meets, you know,
all the different pillars.
Speaker 3 (13:17):
Of our growth.
Speaker 5 (13:18):
It has above average divining neal, above average dividend growth,
and low volatility. Is a dreamstock for this portfolio. Another example,
so that would be a Tier one company. Another example
of a different tier company would be a Broadcome you
know where when we first bought the name back in
twenty and eighteen, it was only a Tier three company.
Speaker 3 (13:38):
It only had nine years of dividend increases.
Speaker 5 (13:41):
But we looked at you know, the historical dividend increases
out of this name, some recent acquisitions they made that
solidified and smoothed their cash flows because of more recurring
software sales. It really started to fit and it also
allowed us to increase our ex closure to the technology sector,
(14:01):
which you know, with it being a dividend investor, you know,
the technology sector, it's it's difficult to find quality yield.
You know, it seems like there's more value traps or
extremely low dividend yields because they're focused on growth. So
when Broadcom walked into our universe, we certainly took advantage
of that and established a decent position because of how
(14:24):
it was contributing to the yield of the fond as
well as the growth of income. You know, So we're
willing to sacrifice taken on a little bit more risk
because of the excess you know, contribution it gave to
the yield and growth of yield. You know, So when
looking at our process and how you know I would
(14:44):
rate it, you know, when looking at you know, our
process since inception and the performance you know it has
delivered absolute superior not only risk adjusted returns, but absolute
returns versus our our peers, which in a sense is
returning more than our peers while taking on less risk.
Speaker 2 (15:05):
Now you mentioned how you cheer the companies right by
dibend yield and so on. Are there any specific metrics
you like to look at to assess the sustainability of dividends?
Speaker 5 (15:17):
Yeah, dividend history is probably the number one, you know.
So the average company within our portfolio has raised its
dividend for twenty four and second years and that gives us,
you know, pretty good comfort that you know, we're going
to be able to you know, deliver that that growing
income stream to our shareholders.
Speaker 3 (15:35):
And we have a.
Speaker 5 (15:36):
Successfully done that since inception. We've grown the dividend every
single year, never seen a drop. And that's a commitment
that you know, we have on a going for basis
is to grow that dividend on a going for basis.
You know, other metrics that we're going to look at
would be a company's yield relative to its historic yield.
Speaker 3 (15:56):
You know, it's you know, another valuation metric that kind
of tells you.
Speaker 5 (16:00):
You, you know, what income you're getting for what I'm paying. Obviously,
the payout ratio is going to be a metric that.
Speaker 3 (16:08):
We look at.
Speaker 5 (16:09):
A net debt to EBITA is a very important one
because if that number begins to climb, you're going to
have to start questioning the you know, ability of the
company to continue to pay that dividend and they may
have to put their focus elsewhere, which puts a little
cloud over the dividend side of things.
Speaker 3 (16:29):
And one can't deny long term, a total return of
a stock is very important.
Speaker 5 (16:36):
You know, if you just simply look at yield in
particular dividend metrics without looking at how the company is
actually returned over a longer term period like ten years,
you can find yourself a value trap.
Speaker 2 (16:49):
And do you care about buybacks at all, you know,
trying to deliver higher shareholder yield?
Speaker 3 (16:55):
Yeah, definitely we do.
Speaker 4 (16:56):
We do place more emphasis on yield, you know, as
ours returning capital to shareholders. Because this is a dividend fund,
we're paying most attention to the regular dividends. Occasionally there's
a special dividend, but really any form of returning capital
to shareholders we like to see that, including buybacks. So
(17:17):
definitely we're looking at that as well.
Speaker 3 (17:20):
And one thing I would add to that is dividends are.
Speaker 5 (17:23):
Definitely more direct to investors, you know, where share purchases
can be overshadowed by you know, executive compensation or share incentives.
Speaker 1 (17:35):
I do you want to ask a follow up question
regarding valuations. You mentioned you looked at historic yields, but
are there other types of valuation metrics or just you know,
a way you look at valuations and underlying securities.
Speaker 5 (17:49):
Yeah, I think price to earnings would be the predominant
one that we use for a fund like this because
of how you know, developed the companies are that we're
invested in, and you know, the approach that we take,
We're going to look at individual company price to earnings
ratio versus its historic range, you know where it is
at on the range, as well as peer analysis, sector analysis,
(18:11):
and broad market analysis. You know, so by looking at
all those different phases, you're able to identify pockets of
opportunity not just on the individual stock side of things,
but also sector industry side of things.
Speaker 3 (18:24):
You know, with that by gearing more, you.
Speaker 5 (18:27):
Know, money towards attract evaluation, you know, you get the
opportunity for a multiple expansion and then vice versa.
Speaker 3 (18:35):
When we begin to see extreme valuation.
Speaker 5 (18:38):
And I say that because you know, I feel selling
a company if it's a you know, two to three
turns above its historical range or average range, you know,
isn't necessarily fit the mantra of long term investing. The
extreme would be when you're five, six, seven turns above
its historic average. That's where we're going to start to
(18:59):
decrease the position. And you know that's largely a function
of multiple compression in contraction. Over time, you know, these
companies will revert to their mean. And you know, if
you're if you're heavily exposed to overvalued companies, you're you're
you're adding more risk to your portfolio.
Speaker 2 (19:17):
There's been a few companies recently initiating dividends. Meta comes
to mind. Do you care about those stocks at all?
Are you willing to go into them as they initiate,
or do you have to kind of wait for the
consecutive history of dividends.
Speaker 5 (19:32):
So with our tearing system, we do have flexibility in
that front. It's pretty rare that we're going to invest
in a company with less than five years, you know,
as in the case of Broadcom, we waited until they
were approaching that ten year mark, and we were highly
confident that they were going to excel through that tenure,
(19:52):
so we established a position. You know, but when looking
at these initiators, it's not very common where a company
initiates a dividend and it's it's going to fall into
our universe because you know that the yield is going
to be so light from the get go. So we
want the story to mature and for them to prove
up that they're fully committed to the dividend, and that's
(20:13):
when they would enter our universe and we would identify
and decide whether it's an appropriate stock.
Speaker 3 (20:19):
For our fund.
Speaker 1 (20:20):
Do you consider the macro environment at all when you're
looking at companies, Well, the.
Speaker 5 (20:25):
Macro environment, you know, I think is going to impact
you know, each sector independently, you know, but we're pretty
agnostic about the macro environment, you know, by you know,
following our process in committing to high quality companies with
wide modes you know, really really drives our long term performance.
(20:47):
The macro environment does create pockets of opportunity.
Speaker 3 (20:51):
You know.
Speaker 5 (20:52):
A couple of great examples would be back in twenty sixteen,
you know, when the bond market kind of turned, you know,
the bond proxies you know, started to come under pressure,
and we were able to get ahead of that, you know,
by reducing our exposure to our consumer staples.
Speaker 3 (21:09):
You know, before you know, the.
Speaker 5 (21:11):
Downturn happened, and that was largely a function you know,
of the macro It was macro driven as well as
extreme valuation within consumer staples. The same thing happened in
twenty twenty two, you know, or the macro environment you know,
pro push down the technology sector and again created opportunities
as the share price fall yields price and we were
(21:33):
able to pick up you know, some technology names on
the cheap with you know, acceptable dividend yields, you know,
for how the you know, the.
Speaker 3 (21:40):
Companies are going to contribute to the portfolio goals.
Speaker 5 (21:43):
And the most recent one was just late last year,
we took our utility exposure you know, from eight percent
to close to fifteen percent just because of the backdrop
the attract evaluation, the you know, acceleration in capex which
will lead to further grow both largely driven by the
speculation of load growth driven by data centers.
Speaker 2 (22:06):
So what do you identify as the biggest risk to
dividend investing broadly? Is it just kind of higher inflation,
higher rates persisting for longer making bonds more attractive, or
is it something else?
Speaker 5 (22:16):
I would probably tend to agree that rates, you know,
would be you know the biggest you know.
Speaker 4 (22:23):
Threat time to time, I think dividend stocks go out
of favor, and you know, this has happened numerous times
since we open the fund, you know, and recently with
short term interest rates so high and you know where
people could go out and get a five five and
a half percent CD or you know the same thing
in a money market fund that competed pretty pretty hard
(22:48):
against you know, dividend stocks and you know fun link
ours that might pay three three and a half percent,
while individual investors can go and buy a CD at
five percent risk free.
Speaker 3 (23:00):
Many of them opted for that. You know.
Speaker 4 (23:03):
Hopefully, now that it's pretty evident the fats can start cutting,
we'll be able to compete dividend stocks dived in equity
income type mutual funds I think will be much more competitive.
Probably already are you know, market rates have already fallen significantly,
So I think that will will.
Speaker 3 (23:22):
Help us moving forward.
Speaker 1 (23:23):
You mentioned the tier system when you're looking to purchase securities.
Does it work on the the other end, you know,
does you know if a stock falls from tier you know,
your top tier to a lower tier, does that you know,
initiate a sell?
Speaker 3 (23:39):
You know, I think it would. It would.
Speaker 5 (23:41):
There there'd be something going on where the company you know,
is following a tier. You know, So we're going to
address again that individual company, how it's contributing to the
portfolio goals, and if it starts a fall out of favor,
we're going to begin to reduce the you know, our
exposure to that name. And a prime example would be
you know, with such a rapid rise and its share
(24:03):
price over the last you know, five six years, it's
pushed its yield. When we initially purchased it, it was
you know four plus percent dividen yield. Now it's got
a little one handle, you know, so we've obviously you know,
reduced our our exposure to that name.
Speaker 3 (24:19):
So yes, it certainly.
Speaker 5 (24:21):
Plays a role in our not only whether we're buying
or selling, but how how we're positioning it in the portfolio.
Speaker 2 (24:28):
Does it cut automatically force you out of a position
or do you reassess if you believe in company fundamentals.
Speaker 5 (24:35):
Ninety five percent of the time, it's going to be
it's going to exit the portfolio. You know, there have
been cases where you know, there was a corporate restructure
you know that caused you know, a reduction in the dividend,
you know, via a spin off of a portion of
the company's business, which would.
Speaker 3 (24:53):
You know, it's not what we like to see, but.
Speaker 5 (24:57):
You know, it's less of a concern if versus like
deteriorating fundamentals, you know, causing stress and ultimately the competator
reducer divid and that's not something we're looking for. And
there's been so many studies done, you know, on returns
by dividend policy, that it just should be a simple rule.
Speaker 3 (25:18):
If they cut, it's gone.
Speaker 5 (25:20):
Because of they are at the bottom of the list
for you know, total return over long period of.
Speaker 3 (25:24):
Time, that would be dividend cutters.
Speaker 5 (25:26):
And on the flip side of things, things dividend initiators
and razors have drastically outperformed the broader market.
Speaker 3 (25:34):
And that's why we feel this is, you know.
Speaker 5 (25:36):
Such an excellent fund at providing risk adjusted returns.
Speaker 2 (25:42):
And how do you deal with any sector biases that
might emerge? I mean, high payers can often be pretty clumpy, right.
Speaker 3 (25:52):
I guess what do you mean by sector biases?
Speaker 2 (25:55):
Like, you know, energy has like a pretty high proportion
of high in yielders for example, Right, do you make
sure that you have weights pretty close to the benchmark
or whatever your benchmark might be, or do you just
let those drift? I went along with the yields and
so on.
Speaker 4 (26:13):
To answer that one, I would say that given the
fact we're managing for low volatility, you know, we're generally
going to be overweight.
Speaker 3 (26:20):
Your staples, utilities, healthcare people.
Speaker 4 (26:24):
Are always going to need toothpaste toilet paper, electricity.
Speaker 3 (26:28):
And medicine. So the companies that deliver those.
Speaker 4 (26:31):
Products are going to have a very reliable, stable cash
flow and very reliable dividends and typically less volatility of
their share price. So I would say those are three
sectors that we typically will overweight. As Mike mentioned, we
really like the utility sector now and stepping up our
(26:53):
waiting coming into this year.
Speaker 3 (26:55):
We believe they provide.
Speaker 4 (26:58):
Obviously a degree a defense given their stable cash flows,
but definitely offense as well with a load growth that's
going to be occurring over the country in the near years.
And then you know, depending on the macro environment, we
look for opportunities in other sectors so that we stay
fairly diversified across you know, all those sectors in the
(27:21):
S and P.
Speaker 5 (27:22):
Yeah, to add to that, you know, it's like I
treat those defensive sectors you know, as the core of
our portfolio. In the remainder being dynamic, you know, in
the opportunities present at any given time is going to
you know, you know, I guess dictate our sector allocation.
(27:43):
As Shannon mentioned, we're not going to overly stretch our exposure.
You know, as you mentioned energy and there is incredible
income opportunities at incredible evaluations with an energy but it
is very important to not you know, go overboard with
with with exposure to an extremely volatile sector.
Speaker 2 (28:05):
Yeah, and with some of the megacaps initial dividends, they
might be creeping into your universe. But are are you
worried about any concentration risk in the style maybe looking
out into the future of five five years or so, you.
Speaker 5 (28:21):
Know, from our portfolio standpoint, you know, I think we've
you know, kept away from, you know, any concentration. We've
had some strong performers at the top that we've you know,
kept in check to make sure we don't get overly concentrated,
you know.
Speaker 3 (28:35):
But from a broad based standpoint, is that kind of
what you're referring to?
Speaker 2 (28:39):
Yeah, Yeah, just in general. I mean, if you look
at the S and P for example, right you've got
thirty to forty in the top seven stocks right now,
and it's getting a little bit concerning for investors broadly.
I was just wondering if you were seeing this, Yeah.
Speaker 5 (28:53):
And I think that would probably be a positive, you know,
for a dividend investor because and we've already seen this
in the past couple of months as breadth has expanded,
you know, which is you know, greatly positive for the
rest of the market, negative for the meg seven.
Speaker 3 (29:12):
You know.
Speaker 5 (29:13):
And when when looking at you know, valuations, I think
this trend you know, has a lot of potential to continue.
And it also gets back to you know, my my
comments of you know, diving and investing in how you know,
how they are correlated into value and values long term
history versus growth. There's a study done back in twenty
(29:37):
nineteen and if I adjust the numbers to twenty twenty three,
value on a rolling fifteen year basis as outperform growth
nearly ninety percent of the time going back to nineteen
twenty seven.
Speaker 3 (29:49):
You know, so value is the true leader, you know
in the market. It's you know, it's been growth for
my lifetime, you know.
Speaker 5 (29:57):
But ultimately, you know, we see value gaining its leadership.
Speaker 2 (30:03):
And uh, there's a lot of cash flush companies out there,
especially I mean tech comes to mind right off the
top of my head. What do you think is necessary
to spur some of these make it caps maybe to
return more capital shareholders. There's a lack of opportunities or yeah, or.
Speaker 3 (30:18):
Both opportunities would have to dry out.
Speaker 5 (30:21):
And that I don't see that happening, I guess anytime
in the next few years. There's ample opportunities where even
the massive piles are sitting.
Speaker 3 (30:30):
On aren't enough for what they could realistically spend.
Speaker 2 (30:33):
Yeah, and do you think rate cuts at all will
will kind of impact that, maybe urge companies to give
more back to shareholders.
Speaker 5 (30:43):
That's difficult, you know, on the growth companies, because you know,
in a lower rate environment it does create you know,
more attractive returns for growth products, So I would say
they'd be more inclined to, you know, continue on towards that,
the growth side side of things.
Speaker 3 (30:59):
Yeah.
Speaker 1 (31:01):
Well, I've actually just got one more question actually for
the both of you. What are your favorite investment books.
We'll start with you, Shannon.
Speaker 3 (31:09):
No particular one comes to mind. When I have free time,
I read more research.
Speaker 1 (31:13):
Okay, fair enough.
Speaker 4 (31:15):
Yeah, I just need to read as much research as
I can and try and keep up with Mike on
on my research.
Speaker 1 (31:22):
How about you, Mike.
Speaker 5 (31:23):
Yeah, I don't know if it'll ever catch me, but no,
I would say definitively it's The Automatic Millionaire.
Speaker 3 (31:33):
By David Bach. Received that book when I was a senior.
Speaker 5 (31:37):
Well, graduated high school, read it front to back and
really changed my perspective on, you know, on investing and
paying yourself first and just being a little bit more responsible,
you know, about how you invest. So that's definitively the
top of my list, even though it's been I don't know,
probably twenty years since.
Speaker 1 (31:57):
I've read it, so it's nice. Well, you know, this
was great, Shannon, Mike, thank you so much for joining
us today.
Speaker 3 (32:04):
Thank you, Dave, and thank you Mike. Yep.
Speaker 1 (32:06):
Thanks guys and Mike, thank you for being my co host.
Thank you until our next episode. This is David Cohne
with Inside Active
Welcome to Inside Active, a podcast about active managers that
goes beyond sound bites and headlines and look steeper into
their processes, challenges and philosophies and security selection. I'm David Cone, I,
lead mutual fund on active research at Bloomberg Intelligence. Today
my co host is Michael Casper, small cap and sector
strategist at Bloomberg Intelligence. Mike, thank you for joining me
(00:33):
today as my co host.
Speaker 2 (00:35):
Thanks David.
Speaker 1 (00:36):
So, there was a note published yesterday by Gina and
Wendy that I wanted to ask you about. You know,
they mentioned stock buybacks have increased during the summer, you know,
wild dividends have risen. Why is capital deployment increasing?
Speaker 2 (00:50):
Well, there's two big factors at play. The first is
that cash is at or near all time highs if
you include financials, if you take out financial in real estate,
you actually get a much more muted picture, but still
compared to the pre pandemic period. We're looking at S
and P five hundred companies flush with cash right now,
(01:12):
and they're starting to use that in various ways. Buybacks
has been the main way they've been deploying capital.
Speaker 3 (01:18):
Recently.
Speaker 2 (01:19):
In the second quarter, buybacks jump thirty four percent from
a year ago for S and P five hundred companies.
I think part of that has to do with some
of the volatility that there wasn't in stocks during the
second quarter. You know, companies prefer to back cheap or
buyback stocks when it's cheap, But a lot of that
does have to do with the high cash positions and
kind of trying to boost their stocks. Second of all,
(01:42):
dividends are right about on the pre pandemic norm now
in terms of payout, and CAPEX has really been surging.
Capex has been one of the main ways that that
companies have been deploying capital, and a lot of that,
of course is coming from tech and their AI spending,
but in general, it all comes back to how big
(02:04):
the cash positions are for S and P five hundred
companies right now.
Speaker 1 (02:07):
Well, as we talk about capital deployment and dividends more specifically,
i'd like to bring on today's guests. Shannon Radke is
CEO of Integrity Viking Funds and senior portfolio manager for
a number of the firm's mutual funds, including the Integrity
Dividend Harvest Fund, which is a ticker of IDIVX. Also
joining us is Michael Moriy, chief investment officer Viking Fund
(02:29):
Management and co portfolio manager on a number of the
firm's funds. Shannon, Mike, thank you so much for joining
us today.
Speaker 3 (02:35):
Thank you guys for having us.
Speaker 1 (02:37):
So I'd like to start off hearing more about your backgrounds.
So we'll start with you, Shannon. How did you get
your start in the investment industry?
Speaker 3 (02:44):
Sure, I guess my.
Speaker 4 (02:45):
First exposure was an economics class in high school where
actually each student got to build their own stock portfolio,
which I thought was pretty cool. That kind of led
me to pursue a finance degree at the University of Northakota,
where I fortunately there were more investment classes there economics
(03:06):
classes and so on, so I continued to enjoy I
guess that field of interest. I also joined a student
investment club at und Then, you know, as I was
approaching graduation, I decided my preference was to be close
to home in mine at North Dakota, which left my
(03:26):
options at the time I thought fairly limited. I was
looking at potentially working for a bank, bank, trust department,
or brokerage firm, and that's when I heard that Bob
Wallstead from mine at I had just started up the
company that would ultimately become Integrity Mitual Funds, so the
(03:48):
timing could not have been better. On that I was
able to go back to my hometown and mine not
go to work for Bob in the fall of nineteen
eighty eight and start pursuing my investment career there. I
actually started out in sales, and shortly after we opened
our first fund, which was actually at North Dakota Tax
(04:10):
Free Fund, we decided to bring in house the shareholder servicing,
fund accounting, and fund admin and Bob needed a guy
to run that, so I became operations manager at the
time we brought that in house. Eventually he promoted me
to COO where I worked directly with the various department heads,
(04:30):
including the PMS, which I very much enjoyed. Then in
nineteen ninety eight, I left the firm to kind of
pursue a dream and open my own firm. I was,
I guess thirty one years old at the time, so
it was pretty big undertaking for me. That's when I
(04:51):
got to work on writing the registration statement for Viking
Mutual Funds, and that really was a big undertaking, big
process when you register a group of mutual funds with
the SEC. You know, it's not just the funds that
you're registering. You need to create and register an investment advisor.
(05:12):
You need to create and register a proper dealer to
service underator for the funds. And we also decided to
create and register a transfer agent so that we could
do the shareholders servicing and fund of coning in house.
So that took quite a period of time, you know,
between writing the prospectus, the SAI, which both go in
the registration statement, the various exhibits, the agreements between the
(05:35):
funds and the service providers, heck of a lot of
work in a pretty big document that actually ends up
getting filed with the SEC. So at Viking we opened
our first fund in nineteen ninety nine.
Speaker 3 (05:49):
And it was just a tremendous experience for me. I
think I've worn.
Speaker 4 (05:53):
Every hat you can imagine in the mutual fund industry.
So I was actually seeing shareholder transactions, calculating net asset
values for the funds, creating and filing the sem annual
reports to shareholders, filing various other reports with the SEC,
(06:16):
monitoring for compliance, doing the portfolio management, and they even
helped out the wholesalers from time to time. So I
think that experience at Viking really helped to make me a.
Speaker 3 (06:27):
Better CEO today because I really.
Speaker 4 (06:31):
Understand the inner workings of the entire mutual fund management company.
Speaker 3 (06:36):
So as we move forward.
Speaker 4 (06:38):
In two thousand and nine, came back together with Bob
Wolstead and we merged Integrity and Viking together to form
Integrity Viking Funds.
Speaker 3 (06:47):
And that's how we have our name today.
Speaker 4 (06:49):
And then at the time that we came back together,
I believe our AUM was sitting around two hundred and
fifty million. Today we are between nine hundred million and
a billion, so we have grown. We're pretty proud of
that growth. As you may know, it's pretty difficult in
the day and age for active managers to grow their
assets to actually have net inflows.
Speaker 3 (07:11):
Buy and large.
Speaker 4 (07:12):
On average, active managers have had outflows for many years off,
not decades, with a lot of money going into index
funds and ETFs.
Speaker 3 (07:21):
So pretty pleased with where we're at.
Speaker 4 (07:24):
You know, we often hear people getting pretty surprised when
the year we're operating out of North Dakota.
Speaker 3 (07:30):
They're like, what you're where?
Speaker 4 (07:34):
But I always say, why not? We have great people
in North Dakota. They have a great work ethic. We
have excellent universities. Und where I went in Grand Forks,
Minor State University is a great university. It has an
excellent finance program. Many of our employees have come from
my state, so we're lucky to have that university here.
(07:56):
We often take interns from the U. I would say
about half of them come employees, so happy to be
here working out of mine at We also.
Speaker 3 (08:04):
Have a lot of employee ownership.
Speaker 4 (08:06):
I think that's important for a company to have your
employees have skin in the game.
Speaker 1 (08:10):
Nice Mike, How about yourself.
Speaker 5 (08:12):
I was excelled in math even from a young age,
you know, and growing up my father was a commodities broker,
so I've always found investments intriguing. My first job I
had in high school was at a bank, so it
was smaller number of stuff, but still, you know, just
very intriguing.
Speaker 3 (08:30):
So my mind has always been kind of around numbers.
Speaker 5 (08:33):
When I went to college, you know, I attended my
first year, I didn't know if I still wanted to,
you know, pursue finance.
Speaker 3 (08:42):
Geology had really intrigued me.
Speaker 5 (08:45):
So my freshman year I took a couple of different
classes in each of those respective fields and ultimately decided
on finance. And that's at minut State University where I
attended college. I know Shannon did mention their finance program.
I'd like to give a shout out to Jerry Sti.
I think he was a professor that really pushed me
(09:07):
over the edge and got me fully committed to finance.
Senior year at Minus State University, I did an intern
at Integrity Viking Funds and began working when I graduated
in twenty ten at Integrity Biking.
Speaker 1 (09:24):
You know, I think we should, you know, kind of
really talk about the Integrity Dividend Harvest Fund. I think
it's an interesting fund. What is the process or the
investment process that you guys go through to manage this fund?
Speaker 3 (09:37):
Well, you know, the.
Speaker 5 (09:39):
First kind of step of the processes is defining the
goals of the portfolio. So you know, we have a
three tiered goal system where we're trying to maximize the
current income as well as maximize the growth of that
income to our shareholders, all while minimizing volatility. And we
(10:00):
feel this recipe and does an exceptional job providing our
shareholders superior risk adjusted returns you know, throughout the full
cycle of the market. I think it's something that's kind
of gotten lost in this era or decade plus, you know,
period where growth has reigned supreme, you know, where the
(10:21):
classic value investing you know.
Speaker 3 (10:24):
Still has a place in people's portfolio.
Speaker 5 (10:27):
And on going forward basis, you know, I think it's
going to fully you know, solidify itself, you know, as
as you know, a core of a portfolio.
Speaker 3 (10:37):
You know, if you look.
Speaker 5 (10:37):
At history, value has a very strong track record of
outperforming growth, you know, despite the recent performance of growth.
So we feel that value is very important and dividend
investing is a true component component of value. So with
the defined portfolio goals, you know, we we really have
(11:00):
size on maintaining our investment style and our discipline regardless
of market conditions. So we feel that removes a lot
of emotions from what we do and it's more you know,
factual and fundamental driven.
Speaker 3 (11:15):
That would be our process. You know.
Speaker 5 (11:18):
From there, we run the equities through our key portfolio
metrics screen which will ultimately define our universe.
Speaker 3 (11:29):
You know.
Speaker 5 (11:29):
So the metrics that we are looking at in our
initial screen are beata the current yield of a company
the number of years a company has consecutively increased its
dividend and market capitalization.
Speaker 3 (11:45):
So those are our four key.
Speaker 5 (11:46):
Portfolio metrics and those are used to define the dividend universe.
And once we have our dividend universe, we put it
into a tiering system. You know, so companies that meet
all four of the requirements of the metrics that we're
looking for would be considered a Tier one company. Tier
two company would meet three out of those four metrics,
(12:08):
and then a Tier three company would only meet two
out of the four metrics.
Speaker 3 (12:13):
And by having a blend of Tier one.
Speaker 5 (12:16):
Two, and three companies from our dividend universe provides us
with ample flexibility to meet the goals of the portfolio. Last,
once we have our universe defined, we get into security selection,
and this is completely driven by how each individual company
contributes to the goals of the overall portfolio. Two great
(12:36):
examples of how we use our process and how a
company can get positioned into the portfolio would be Abby.
Speaker 3 (12:47):
You know, we've owned this company almost sense inception.
Speaker 5 (12:51):
It caught our radar because of its extremely attractive dividend yield,
its impressive growth rate of its dividend, which was largely
driven by their blockbuster drug heme era, their ability to
integrate and expand their pipeline, you know, to offset the
loss of exclusivity.
Speaker 3 (13:11):
But when you look.
Speaker 5 (13:11):
At how it fits into our process, it meets, you know,
all the different pillars.
Speaker 3 (13:17):
Of our growth.
Speaker 5 (13:18):
It has above average divining neal, above average dividend growth,
and low volatility. Is a dreamstock for this portfolio. Another example,
so that would be a Tier one company. Another example
of a different tier company would be a Broadcome you
know where when we first bought the name back in
twenty and eighteen, it was only a Tier three company.
Speaker 3 (13:38):
It only had nine years of dividend increases.
Speaker 5 (13:41):
But we looked at you know, the historical dividend increases
out of this name, some recent acquisitions they made that
solidified and smoothed their cash flows because of more recurring
software sales. It really started to fit and it also
allowed us to increase our ex closure to the technology sector,
(14:01):
which you know, with it being a dividend investor, you know,
the technology sector, it's it's difficult to find quality yield.
You know, it seems like there's more value traps or
extremely low dividend yields because they're focused on growth. So
when Broadcom walked into our universe, we certainly took advantage
of that and established a decent position because of how
(14:24):
it was contributing to the yield of the fond as
well as the growth of income. You know, So we're
willing to sacrifice taken on a little bit more risk
because of the excess you know, contribution it gave to
the yield and growth of yield. You know, So when
looking at our process and how you know I would
(14:44):
rate it, you know, when looking at you know, our
process since inception and the performance you know it has
delivered absolute superior not only risk adjusted returns, but absolute
returns versus our our peers, which in a sense is
returning more than our peers while taking on less risk.
Speaker 2 (15:05):
Now you mentioned how you cheer the companies right by
dibend yield and so on. Are there any specific metrics
you like to look at to assess the sustainability of dividends?
Speaker 5 (15:17):
Yeah, dividend history is probably the number one, you know.
So the average company within our portfolio has raised its
dividend for twenty four and second years and that gives us,
you know, pretty good comfort that you know, we're going
to be able to you know, deliver that that growing
income stream to our shareholders.
Speaker 3 (15:35):
And we have a.
Speaker 5 (15:36):
Successfully done that since inception. We've grown the dividend every
single year, never seen a drop. And that's a commitment
that you know, we have on a going for basis
is to grow that dividend on a going for basis.
You know, other metrics that we're going to look at
would be a company's yield relative to its historic yield.
Speaker 3 (15:56):
You know, it's you know, another valuation metric that kind
of tells you.
Speaker 5 (16:00):
You, you know, what income you're getting for what I'm paying. Obviously,
the payout ratio is going to be a metric that.
Speaker 3 (16:08):
We look at.
Speaker 5 (16:09):
A net debt to EBITA is a very important one
because if that number begins to climb, you're going to
have to start questioning the you know, ability of the
company to continue to pay that dividend and they may
have to put their focus elsewhere, which puts a little
cloud over the dividend side of things.
Speaker 3 (16:29):
And one can't deny long term, a total return of
a stock is very important.
Speaker 5 (16:36):
You know, if you just simply look at yield in
particular dividend metrics without looking at how the company is
actually returned over a longer term period like ten years,
you can find yourself a value trap.
Speaker 2 (16:49):
And do you care about buybacks at all, you know,
trying to deliver higher shareholder yield?
Speaker 3 (16:55):
Yeah, definitely we do.
Speaker 4 (16:56):
We do place more emphasis on yield, you know, as
ours returning capital to shareholders. Because this is a dividend fund,
we're paying most attention to the regular dividends. Occasionally there's
a special dividend, but really any form of returning capital
to shareholders we like to see that, including buybacks. So
(17:17):
definitely we're looking at that as well.
Speaker 3 (17:20):
And one thing I would add to that is dividends are.
Speaker 5 (17:23):
Definitely more direct to investors, you know, where share purchases
can be overshadowed by you know, executive compensation or share incentives.
Speaker 1 (17:35):
I do you want to ask a follow up question
regarding valuations. You mentioned you looked at historic yields, but
are there other types of valuation metrics or just you know,
a way you look at valuations and underlying securities.
Speaker 5 (17:49):
Yeah, I think price to earnings would be the predominant
one that we use for a fund like this because
of how you know, developed the companies are that we're
invested in, and you know, the approach that we take,
We're going to look at individual company price to earnings
ratio versus its historic range, you know where it is
at on the range, as well as peer analysis, sector analysis,
(18:11):
and broad market analysis. You know, so by looking at
all those different phases, you're able to identify pockets of
opportunity not just on the individual stock side of things,
but also sector industry side of things.
Speaker 3 (18:24):
You know, with that by gearing more, you.
Speaker 5 (18:27):
Know, money towards attract evaluation, you know, you get the
opportunity for a multiple expansion and then vice versa.
Speaker 3 (18:35):
When we begin to see extreme valuation.
Speaker 5 (18:38):
And I say that because you know, I feel selling
a company if it's a you know, two to three
turns above its historical range or average range, you know,
isn't necessarily fit the mantra of long term investing. The
extreme would be when you're five, six, seven turns above
its historic average. That's where we're going to start to
(18:59):
decrease the position. And you know that's largely a function
of multiple compression in contraction. Over time, you know, these
companies will revert to their mean. And you know, if
you're if you're heavily exposed to overvalued companies, you're you're
you're adding more risk to your portfolio.
Speaker 2 (19:17):
There's been a few companies recently initiating dividends. Meta comes
to mind. Do you care about those stocks at all?
Are you willing to go into them as they initiate,
or do you have to kind of wait for the
consecutive history of dividends.
Speaker 5 (19:32):
So with our tearing system, we do have flexibility in
that front. It's pretty rare that we're going to invest
in a company with less than five years, you know,
as in the case of Broadcom, we waited until they
were approaching that ten year mark, and we were highly
confident that they were going to excel through that tenure,
(19:52):
so we established a position. You know, but when looking
at these initiators, it's not very common where a company
initiates a dividend and it's it's going to fall into
our universe because you know that the yield is going
to be so light from the get go. So we
want the story to mature and for them to prove
up that they're fully committed to the dividend, and that's
(20:13):
when they would enter our universe and we would identify
and decide whether it's an appropriate stock.
Speaker 3 (20:19):
For our fund.
Speaker 1 (20:20):
Do you consider the macro environment at all when you're
looking at companies, Well, the.
Speaker 5 (20:25):
Macro environment, you know, I think is going to impact
you know, each sector independently, you know, but we're pretty
agnostic about the macro environment, you know, by you know,
following our process in committing to high quality companies with
wide modes you know, really really drives our long term performance.
(20:47):
The macro environment does create pockets of opportunity.
Speaker 3 (20:51):
You know.
Speaker 5 (20:52):
A couple of great examples would be back in twenty sixteen,
you know, when the bond market kind of turned, you know,
the bond proxies you know, started to come under pressure,
and we were able to get ahead of that, you know,
by reducing our exposure to our consumer staples.
Speaker 3 (21:09):
You know, before you know, the.
Speaker 5 (21:11):
Downturn happened, and that was largely a function you know,
of the macro It was macro driven as well as
extreme valuation within consumer staples. The same thing happened in
twenty twenty two, you know, or the macro environment you know,
pro push down the technology sector and again created opportunities
as the share price fall yields price and we were
(21:33):
able to pick up you know, some technology names on
the cheap with you know, acceptable dividend yields, you know,
for how the you know, the.
Speaker 3 (21:40):
Companies are going to contribute to the portfolio goals.
Speaker 5 (21:43):
And the most recent one was just late last year,
we took our utility exposure you know, from eight percent
to close to fifteen percent just because of the backdrop
the attract evaluation, the you know, acceleration in capex which
will lead to further grow both largely driven by the
speculation of load growth driven by data centers.
Speaker 2 (22:06):
So what do you identify as the biggest risk to
dividend investing broadly? Is it just kind of higher inflation,
higher rates persisting for longer making bonds more attractive, or
is it something else?
Speaker 5 (22:16):
I would probably tend to agree that rates, you know,
would be you know the biggest you know.
Speaker 4 (22:23):
Threat time to time, I think dividend stocks go out
of favor, and you know, this has happened numerous times
since we open the fund, you know, and recently with
short term interest rates so high and you know where
people could go out and get a five five and
a half percent CD or you know the same thing
in a money market fund that competed pretty pretty hard
(22:48):
against you know, dividend stocks and you know fun link
ours that might pay three three and a half percent,
while individual investors can go and buy a CD at
five percent risk free.
Speaker 3 (23:00):
Many of them opted for that. You know.
Speaker 4 (23:03):
Hopefully, now that it's pretty evident the fats can start cutting,
we'll be able to compete dividend stocks dived in equity
income type mutual funds I think will be much more competitive.
Probably already are you know, market rates have already fallen significantly,
So I think that will will.
Speaker 3 (23:22):
Help us moving forward.
Speaker 1 (23:23):
You mentioned the tier system when you're looking to purchase securities.
Does it work on the the other end, you know,
does you know if a stock falls from tier you know,
your top tier to a lower tier, does that you know,
initiate a sell?
Speaker 3 (23:39):
You know, I think it would. It would.
Speaker 5 (23:41):
There there'd be something going on where the company you know,
is following a tier. You know, So we're going to
address again that individual company, how it's contributing to the
portfolio goals, and if it starts a fall out of favor,
we're going to begin to reduce the you know, our
exposure to that name. And a prime example would be
you know, with such a rapid rise and its share
(24:03):
price over the last you know, five six years, it's
pushed its yield. When we initially purchased it, it was
you know four plus percent dividen yield. Now it's got
a little one handle, you know, so we've obviously you know,
reduced our our exposure to that name.
Speaker 3 (24:19):
So yes, it certainly.
Speaker 5 (24:21):
Plays a role in our not only whether we're buying
or selling, but how how we're positioning it in the portfolio.
Speaker 2 (24:28):
Does it cut automatically force you out of a position
or do you reassess if you believe in company fundamentals.
Speaker 5 (24:35):
Ninety five percent of the time, it's going to be
it's going to exit the portfolio. You know, there have
been cases where you know, there was a corporate restructure
you know that caused you know, a reduction in the dividend,
you know, via a spin off of a portion of
the company's business, which would.
Speaker 3 (24:53):
You know, it's not what we like to see, but.
Speaker 5 (24:57):
You know, it's less of a concern if versus like
deteriorating fundamentals, you know, causing stress and ultimately the competator
reducer divid and that's not something we're looking for. And
there's been so many studies done, you know, on returns
by dividend policy, that it just should be a simple rule.
Speaker 3 (25:18):
If they cut, it's gone.
Speaker 5 (25:20):
Because of they are at the bottom of the list
for you know, total return over long period of.
Speaker 3 (25:24):
Time, that would be dividend cutters.
Speaker 5 (25:26):
And on the flip side of things, things dividend initiators
and razors have drastically outperformed the broader market.
Speaker 3 (25:34):
And that's why we feel this is, you know.
Speaker 5 (25:36):
Such an excellent fund at providing risk adjusted returns.
Speaker 2 (25:42):
And how do you deal with any sector biases that
might emerge? I mean, high payers can often be pretty clumpy, right.
Speaker 3 (25:52):
I guess what do you mean by sector biases?
Speaker 2 (25:55):
Like, you know, energy has like a pretty high proportion
of high in yielders for example, Right, do you make
sure that you have weights pretty close to the benchmark
or whatever your benchmark might be, or do you just
let those drift? I went along with the yields and
so on.
Speaker 4 (26:13):
To answer that one, I would say that given the
fact we're managing for low volatility, you know, we're generally
going to be overweight.
Speaker 3 (26:20):
Your staples, utilities, healthcare people.
Speaker 4 (26:24):
Are always going to need toothpaste toilet paper, electricity.
Speaker 3 (26:28):
And medicine. So the companies that deliver those.
Speaker 4 (26:31):
Products are going to have a very reliable, stable cash
flow and very reliable dividends and typically less volatility of
their share price. So I would say those are three
sectors that we typically will overweight. As Mike mentioned, we
really like the utility sector now and stepping up our
(26:53):
waiting coming into this year.
Speaker 3 (26:55):
We believe they provide.
Speaker 4 (26:58):
Obviously a degree a defense given their stable cash flows,
but definitely offense as well with a load growth that's
going to be occurring over the country in the near years.
And then you know, depending on the macro environment, we
look for opportunities in other sectors so that we stay
fairly diversified across you know, all those sectors in the
(27:21):
S and P.
Speaker 5 (27:22):
Yeah, to add to that, you know, it's like I
treat those defensive sectors you know, as the core of
our portfolio. In the remainder being dynamic, you know, in
the opportunities present at any given time is going to
you know, you know, I guess dictate our sector allocation.
(27:43):
As Shannon mentioned, we're not going to overly stretch our exposure.
You know, as you mentioned energy and there is incredible
income opportunities at incredible evaluations with an energy but it
is very important to not you know, go overboard with
with with exposure to an extremely volatile sector.
Speaker 2 (28:05):
Yeah, and with some of the megacaps initial dividends, they
might be creeping into your universe. But are are you
worried about any concentration risk in the style maybe looking
out into the future of five five years or so, you.
Speaker 5 (28:21):
Know, from our portfolio standpoint, you know, I think we've
you know, kept away from, you know, any concentration. We've
had some strong performers at the top that we've you know,
kept in check to make sure we don't get overly concentrated,
you know.
Speaker 3 (28:35):
But from a broad based standpoint, is that kind of
what you're referring to?
Speaker 2 (28:39):
Yeah, Yeah, just in general. I mean, if you look
at the S and P for example, right you've got
thirty to forty in the top seven stocks right now,
and it's getting a little bit concerning for investors broadly.
I was just wondering if you were seeing this, Yeah.
Speaker 5 (28:53):
And I think that would probably be a positive, you know,
for a dividend investor because and we've already seen this
in the past couple of months as breadth has expanded,
you know, which is you know, greatly positive for the
rest of the market, negative for the meg seven.
Speaker 3 (29:12):
You know.
Speaker 5 (29:13):
And when when looking at you know, valuations, I think
this trend you know, has a lot of potential to continue.
And it also gets back to you know, my my
comments of you know, diving and investing in how you know,
how they are correlated into value and values long term
history versus growth. There's a study done back in twenty
(29:37):
nineteen and if I adjust the numbers to twenty twenty three,
value on a rolling fifteen year basis as outperform growth
nearly ninety percent of the time going back to nineteen
twenty seven.
Speaker 3 (29:49):
You know, so value is the true leader, you know
in the market. It's you know, it's been growth for
my lifetime, you know.
Speaker 5 (29:57):
But ultimately, you know, we see value gaining its leadership.
Speaker 2 (30:03):
And uh, there's a lot of cash flush companies out there,
especially I mean tech comes to mind right off the
top of my head. What do you think is necessary
to spur some of these make it caps maybe to
return more capital shareholders. There's a lack of opportunities or yeah, or.
Speaker 3 (30:18):
Both opportunities would have to dry out.
Speaker 5 (30:21):
And that I don't see that happening, I guess anytime
in the next few years. There's ample opportunities where even
the massive piles are sitting.
Speaker 3 (30:30):
On aren't enough for what they could realistically spend.
Speaker 2 (30:33):
Yeah, and do you think rate cuts at all will
will kind of impact that, maybe urge companies to give
more back to shareholders.
Speaker 5 (30:43):
That's difficult, you know, on the growth companies, because you know,
in a lower rate environment it does create you know,
more attractive returns for growth products, So I would say
they'd be more inclined to, you know, continue on towards that,
the growth side side of things.
Speaker 3 (30:59):
Yeah.
Speaker 1 (31:01):
Well, I've actually just got one more question actually for
the both of you. What are your favorite investment books.
We'll start with you, Shannon.
Speaker 3 (31:09):
No particular one comes to mind. When I have free time,
I read more research.
Speaker 1 (31:13):
Okay, fair enough.
Speaker 4 (31:15):
Yeah, I just need to read as much research as
I can and try and keep up with Mike on
on my research.
Speaker 1 (31:22):
How about you, Mike.
Speaker 5 (31:23):
Yeah, I don't know if it'll ever catch me, but no,
I would say definitively it's The Automatic Millionaire.
Speaker 3 (31:33):
By David Bach. Received that book when I was a senior.
Speaker 5 (31:37):
Well, graduated high school, read it front to back and
really changed my perspective on, you know, on investing and
paying yourself first and just being a little bit more responsible,
you know, about how you invest. So that's definitively the
top of my list, even though it's been I don't know,
probably twenty years since.
Speaker 1 (31:57):
I've read it, so it's nice. Well, you know, this
was great, Shannon, Mike, thank you so much for joining
us today.
Speaker 3 (32:04):
Thank you, Dave, and thank you Mike. Yep.
Speaker 1 (32:06):
Thanks guys and Mike, thank you for being my co host.
Thank you until our next episode. This is David Cohne
with Inside Active
Host
Gina Martin Adams
Popular Podcasts
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com
24/7 News: The Latest
The latest news in 4 minutes updated every hour, every day.
Therapy Gecko
An unlicensed lizard psychologist travels the universe talking to strangers about absolutely nothing. TO CALL THE GECKO: follow me on https://www.twitch.tv/lyleforever to get a notification for when I am taking calls. I am usually live Mondays, Wednesdays, and Fridays but lately a lot of other times too. I am a gecko.