Wed, 7 Aug 2013
With macro conditions improving so far in 2013, Marsico Capital CEO Tom Marsico is more optimistic on economically sensitive ideas presently he was at the beginning of the year.
Karin Anderson: Hi. My name is Karin Anderson. I'm a senior fund analyst here at Morningstar. I'm here today with Tom Marsico, the founder and CEO of Marsico Capital Management, and he is the portfolio manager of three of their strategies, the Marsico Growth, Focused, and Global funds. Tom, thank you very much for being here today.
Tom Marsico: It's nice to be here, Karin. Thanks for having me.
Anderson: I think a great place to start, since your process focuses not only on company research but also macro research, would be to highlight some of your key views when it comes to the big picture and how that's affecting the portfolios that you run.
Marsico: I think that's a good place to start. It's been a very interesting period here for the last 12 months or so. We went through the election period last year. We faced a fiscal cliff. We faced sequestration at the beginning of the year, the Affordable Care Act, and also the increase in the tax associated with the employment tax. There've been a lot of fiscal headwinds that we've had for the first half of the year. Through this, our portfolios were positioned in what we would term stable compounding companies, such as Starbucks and AutoZone. Visa would be another one; [these are] companies that could really benefit in a very tepid economic environment.
As we've moved through this period, we are starting to see some signs that the global economic environment is starting to improve. Obviously, in the United States we're now at a seasonally adjusted annual rate for the auto-manufacturing industry at 16 million [vehicles produced]. Housing starts have moved up dramatically from where they were from a year ago. The wealth effect, given the increase in housing prices and also the stock market, has made people feel little bit more comfortable, confidence is at a high level, and the deleveraging of consumer balance sheets has been prevalent. Also, we've had a pretty quiet period here in Washington. Sequestration has actually worked to bring the deficit down, and economically, we are in a better situation than we were before.
Problems in Europe are a little more concerning. We do believe that [European Central Bank president Mario] Draghi basically put in the floor when he said that he would do anything possible to make certain that there would not be a Lehman Brothers-type event in Europe. That brought spreads on peripheral debt in Italy, Spain, and Portugal in, so those spread levels compressed. The markets have done pretty well over there. With the election we expect in Germany, I think that the German political machine that [German chancellor Angela] Merkel has will now start to focus less on austerity and more on growth. The scrappage rate is greater in the car industry in Europe than the production rate. These are similar signs to what we saw back in the United States in 2009.
Also there have been institutional buyers recently in Spanish real estate, which we find quite interesting, and there are capital raises that are occurring in the European banks. Barclays and Deutsche Bank have both announced capital raises. We think that this banking union that we expect to occur over in the next couple of years will provide a better framework in which you can invest globally.
Also, there's new leadership in China, and the [Chinese consumers'] balance sheets are in very good shape. However, the state-owned enterprises have a lot of debt on them. We believe that the municipalities are fine, but those state-owned enterprises are going to meet a much more competitive environment. But as the economy shifts from fixed asset investment more toward the consumer side, we think China can muddle through at a pretty good growth rate.
We're a little more positive on economically sensitive ideas presently than we would have been six months ago.