What Medalist Managers Are Buying and Selling

Editor’s note: Read the latest on how the coronavirus is rattling the markets and what investors can do to navigate it.

A volatile start to 2020 provided ample opportunity for managers to adjust their portfolios. The 11-year bull market came to a screeching halt in February amid the global economic shutdown caused by the coronavirus, changing many managers’ views of potentially attractive investments.

Earlier this month, Susan Dziubinski reviewed some of Oakmark’s recent moves. A closer look at other strategies with Medalist Morningstar Analyst Ratings offers insight into what some of the industry’s leaders think about the uncertain road ahead.

FPA Crescent FPACX Under manager Steve Romick, FPA Crescent's value-oriented portfolio invests across asset classes, market caps, and geographies. Over the long term, he tends to keep about 63% of assets in riskier assets such as stocks or high-yield bonds, but that rose to 73% over the course of the drawdown as the absolute-value investors saw ample opportunity to buy what they consider resilient companies at cheap prices.

The managers think some downtrodden travel-related companies will survive the global shutdown, buying hotel provider Marriott MAR and Air Canada ACDVF, each of which traded down more than 70% from their all-time highs in the first quarter. Meanwhile, they also initiated a position in online travel company Booking Holdings BKNG, which has proved marginally more resilient than other travel firms during the sell-off on the back of its dominant position in the industry.

True to their absolute-value roots, they also found opportunity in financials like American International Group AIG and Citigroup C because of their strong capital positions compared with the 2008 global financial crisis. Positions in some downtrodden industrials that reached more attractive valuations also appeared in the portfolio, such as South Korean conglomerates LG Corp and Samsung C&T Corp, as well as Westinghouse Air Brake Technologies WAB.

FPA Crescent’s lone share class earns a Morningstar Analyst Rating of Gold.

T Rowe Price Growth Stock PRGFX Led by T. Rowe veteran Joe Fath since 2014, this strategy looks for firms with strong free cash flow and focuses on secular growers, the landscape of which looks dramatically different following the havoc wreaked by the virus. With that in mind, he was particularly active in 2020's first quarter as he pursued well-capitalized companies whose share prices were hit hard.

Fath looked to increase exposure to resilient companies, which should theoretically be able to grow through the challenging economic period ahead. He added to longtime top holding Amazon.com AMZN (which rose to 9.5% of assets) and increased stakes in payments processors Global Payments GPN and PayPal PYPL. Meanwhile, Fath added to some economically sensitive names, including retailer Lululemon Athletica LULU, Wynn Resorts WYNN, and Snap SNAP.

Meanwhile, Fath sold many of the portfolio’s consumer discretionary names during the first quarter, among them Nike NKE, Tesla TSLA, and Dollar General DG. He also sold a few companies that seem particularly poorly positioned for a prolonged slowdown in tourism, namely Disney DIS and MGM Resorts International MGM. Not all the sales were poor performers, however--Fath also liquidated the strategy’s small position in Zoom Video Communications ZM.

T. Rowe Price Growth Stock earns a Morningstar Analyst Rating of Silver for all but its most expensive share class, which earns a Bronze.

FMI Large Cap FMIHX The value-oriented team at FMI, anchored by CIO Patrick English and research director Jonathan Bloom, doesn't think the earnings for the most affected industries such as airlines and restaurants will recover quickly. English and the team also think that popular growth stocks that rely on equity financing, such as Airbnb, Uber UBER, and Lyft LYFT, may be in trouble if risk appetites continue to cool.

English and the team continued to think highly of Berkshire Hathaway BRK.B, a diversified holding company with business lines in insurance, manufacturing, rail transportation, and other industries. They cite the company’s strong track record generating underwriting profits in its Property & Casualty Insurance business in 16 of the past 17 years. It sold off meaningfully in the COVID-19 crisis, now trading at one of the widest discounts to intrinsic value in years according to their modeling. Importantly, they claim that the decentralized nature of the conglomerate limits key-person risk, with Buffett nearing 90 years of age.

They also remain confident in Charles Schwab SCHW, believing that fee compression in the discount brokerage industry will cause continued consolidation into the two largest players (the other being Fidelity). They like Schwab’s historically strong revenue growth and return on equity and believe that their scale is now large enough that they can monetize the business through net interest income on idle client cash, providing a natural hedge in down markets.

FMI Large Cap earns a Morningstar Analyst Rating of Gold for its Institutional share class, while the more expensive Investor share class earns a Silver.

Fidelity International Capital Appreciation FIVFX Fidelity International Capital Appreciation's Sammy Simnegar uses an unusual approach to portfolio construction, maintaining the same active weight in every stock he owns compared with the MSCI ACWI ex US benchmark. Simnegar wanted attractive international growth prospects in the wake of the pandemic, believing Chinese e-commerce, gaming, and Internet stocks have a strong chance to rebound. To that end, he continues to hold positions in titans Tencent TCTZF and Alibaba BABA through February.

Meanwhile, he believed certain industries would take longer to bounce back from the drawdown than the market expects, and some might never make it all the way back. As a growth manager, he was particularly bearish in travel and leisure companies, selling out of companies such as Shanghai International Airport while favoring payments processors like Mastercard MA. Simnegar had concerns about the hotel industry’s growth prospects before the virus because of its consolidation playing out and Airbnb’s disruption, and the outbreak only reinforced that view. He also changed his mind about European airline suppliers given the newly lacking demand for parts and the uncertainty about whether the previous levels of demand will be restored.

Fidelity International Capital Appreciation earns a Morningstar Analyst Rating of Bronze for its lone share class, while near-clone Fidelity Advisor International Capital Appreciation FCPIX receives a Bronze rating for two share classes and Neutral for more-expensive ones.