no one can predict what the market is going to do a year or even a day from now
was a common refrain at the eighth annual University of Virginia Investing
Conference held at the Darden School of
but that didn’t stop an all-star list of investment professionals and
executives from offering their best ideas about where the next big
opportunities will emerge.
macro trends like bullish economic data to beaten up sectors like energy that
are primed for a comeback to individual companies emerging with a great
business model or management team, speakers presented an optimistic tone
despite the more pessimistic conference theme: Investing in a Low-Return World.
Will They or Won’t
gorilla in the room, however, was uncertainty over the Federal Reserve Bank’s
decision on when — and by how much — it would start raising the federal funds
rate, the key rate determining other interest rates offered throughout the
President and CEO Roger Ferguson Jr., a former vice chairman of the Board of
Governors of the Federal Reserve System, helped address that question from the
jump on 12 November, predicting that the Fed would indeed raise the rates by 25
basis points in December.
stars are aligned, but it will depend on the [economic] data and there is still
more data to come in,” Ferguson said. “The cake is not baked yet, but cake is
in the oven and it’s set to 350.”
important, Ferguson said, is what approach the Fed takes after the initial
raise. He said a 25-basis-point increase means little in real terms to the
economy. However, the last time the Fed started raising rates, it started a
streak of 14 consecutive 25-basis-point rate increases.
by Darden Professor Frank Warnock, Ferguson said
the Fed is indicating a slower, steadier increase this time around, but it’s
difficult to predict what will happen once the increases start. So long as
inflation is low, Ferguson said interest rate increases are prudent and good
fact, despite the hand-wringing among investors over the negative impacts of
rising rates, Ferguson said rising rates and low inflation has historically been
a positive combination for equities. He expects rising rates to be a net
positive for TIAA-CREF’s $835 billion of managed funds.
the second day of the conference, Warnock interviewed William Poole, a senior fellow
at the Cato Institute and former President and CEO of the Federal Reserve Bank
of St. Louis. Poole reminded UVIC participants that despite all the attention
paid to the Fed’s decision regarding the federal funds rate, the longer term interest
rates will only rise with growth in GDP. For GDP growth to rise, Poole said, businesses will need
to increase the dollars devoted to investment. In other words, the interest
rates we observe in the economy are the result of the underlying fundamentals,
such as investment and savings.
panelists and speakers at the conference took their turn at offering investing
advice, from general strategies down to specific stocks they were buying.
Investment Research Chief U.S. Equity Strategist Tobias Levkovich kicked off
day two at the conference by describing a notable gap in perception versus
reality in the stock market today — a gap that could mean opportunities for
uses a collection of 20 sentiment indicators to determine if the market is in a
“panic,” neutral or in “euphoria.” The indicators currently show that the
market is in a mild state of panic, essentially bearish about the near-term
prospects for equities.
the other hand, a plethora of economic data suggests the U.S. is in no
near-term danger of entering a recession and that there is reason to be
optimistic about the economy and the stock market.
perception versus reality gap informed Levkovich’s larger point that investors’
nature often gets in the way of data-informed reason, which he said makes going
against the crowd a successful investing strategy.
three members of the Fundamental Stock Panel — Charles de Vaulx of
International Value Advisers, Billal Sikander of Monroe Hall Asset Management, Gregory
McCrickard of T.Rowe Price and moderator Don Wilkinson III (MBA ’92) of
Wilkinson O’Grady & Co. — agreed. They all classified themselves as “value
investors,” and said the key to good value investing was finding the diamond in
the rough — a company others fundamentally misunderstood, but is actually a
great opportunity to buy low and ride up.
Curve Capital founder and CEO Tom Brown also saw reasons for optimism. Brown,
whose hedge fund specializes in financial
service sector investments, viewed rising interest rates as generally favorable
for the financial sector and stressed the importance of patience when investing
in the current environment. His stock selection strategy focused on smaller
banks that generally receive less scrutiny from analysts and therefore offered
a higher likelihood of trading away from their intrinsic value. All things considered, Brown saw no shortage
of opportunities in his sphere of expertise.
it is only a relatively small part of the economy, energy has had an outsized
impact on the stock market, according to Levkovich, while the industry has been
rocked by low oil and natural gas prices in the last year.
Levkovich said the trend against energy stocks has gone too far, beyond the
weak fundamentals, and he expects the sector’s stocks to bounce back. Kayne
Anderson Capital Advisors Chief Investment Officer, President and CEO Robert
Sinnott went even a step further.
months to two years from now, we think you will make a fortune in oil and gas
and [master limited partnership] investing,” Sinnott said, emphasizing that
patience would by key as the turnaround will take months to materialize and
Corp. John Hess certainly wouldn’t argue with Sinnott’s assessment. During a
fireside chat-style interview led by Riverstone Holdings Partner Elizabeth
Weymouth (MBA ’94), Hess explained his recent comment on CNBC that “nothing
cures low prices like low prices” by explaining that low oil prices tend to
drive supply and demand reactions that ensure the price will rise again.
you look at the last four oil price crashes, it takes about two years for the
market to rebalance,” Hess said. “We’re in the first year of that rebalance, so
it will probably be another year before prices start to go up again.”
the factors working in oil’s favor, Hess said investment in oil and natural gas
exploration and production has already fallen below the point necessary to keep
production at the current supply level, and it will go down even further next
The International Energy Agency expects non-OPEC oil production to fall
500,000 million barrels per day next year. On the demand side, lower oil prices
are actually encouraging consumers to travel more and there is no sign of
demand growth slowing down in emerging economies like China and India, where
the wealth effect and increasing urbanization create consumers who use much
a few years ago, Middlegame Ventures General Partner L. Michael Meyer (MBA ’92)
said no one in the financial services industry was using the term financial
technology, better known as FinTech. But, oh, how times have changed.
Meyer began investing in early-stage financial services companies that came to
be the leading edge of FinTech because he saw a transformation coming to the
industry. Today, that transformation is occurring at incredible speed as the
sector is disrupted by new smart technologies and automation.
66 Ventures General Partner Pascal Bouvier said that the sector has essentially
transformed into an extension of the tech industry today, which is a monumental
shift away from inefficient legacy banking and accounting infrastructure composed of countless proprietary systems.
panel, which also featured Sandra Ro of CME Group, said cryptocurrencies like
BitCoin are now the leading edge of
FinTech. More important than any single cryptocurrency is the infrastructure
that supports those currencies, the most prominent of which is called
a system like Blockchain that can support completely frictionless transactions
to move currency or ownership of assets around the world, instantaneously, the
panelists painted a picture of a future where banking and all monetary
transactions are carried out on a cell phone.
is enabling the Uber-ization of money,” Meyer said. “Imagine a world where
seven billion people with a cell phone are ATMs. When everyone can be an ATM,
there’s no more Western Union, no more ATMS, no more MoneyGrams. It’s quite
conference at the Darden School would be complete without some advice for
urged Darden students to “find your passion and then give 150 percent. Don’t
leave anything out on the field. If you do that, you will be happy.” However,
he warned them not to lose sight of “their most valuable asset” — family — and
to also give back to their community.
offered advice that was only partially tongue-in-cheek. He said chasing the
hot, popular job meant they’d be paid up to 35 percent less because of the
demand for the positions, whereas less popular positions like petroleum
engineer paid extremely well to attract the limited supply of necessary talent.
He also advised students to want to be something, not be someone. They would
only find happiness in their work by pursuing a field that truly interested
See more actionable insights from UVIC experts.
The University of Virginia Darden School
of Business delivers the world’s best
business education experience to prepare
entrepreneurial, global and responsible leaders through its MBA, Ph.D. and
Executive Education programs. Darden’s top-ranked faculty is renowned for
teaching excellence and advances practical business knowledge through research.
Darden was established in 1955 at the University of Virginia, a top public
university founded by Thomas Jefferson in 1819 in Charlottesville, Virginia.
Sophie ZunzDirector of Media RelationsDarden School of BusinessUniversity of VirginiaZunzS@darden.virginia.edu+1-434-924-7502
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