Falling energy prices are likely to continue through 2015, with ripple effects throughout the economy, according to Jeanie Wyatt, CEO and chief investment officer at South Texas Money Management, which manages $2.4 billion.
“We've been very public about our view that oil prices had down side below 70 [dollars per barrel], and for the last couple of months we've been using a 60 to 65 price target, but we've not seen that as an opportunity to start buying if it reaches those prices,” Wyatt told Markets Media. “For the next 6 to 12 months we're very cautious on oil, and I think that it's not likely to see 90 for a while. We may see 50 long before we see 90.”
STMM is starting to increase its exposure to consumer discretionary stocks, an area that was underweight during 2014, and which it believes will be a beneficiary of falling oil prices. “This will be abundantly clear as we get fourth-quarter earnings,” Wyatt said. “Many companies are going to be negatively impacted by the fall in oil prices, and not necessarily just energy companies.”
In Texas, the energy sector has the biggest exposure to oil prices, “but it filters into a lot of financial stocks,” she said.
In May, STMM held its annual energy symposium during which it brings energy consultants to San Antonio to speak to its clients. “Since last May, we have been very defensive on energy,” Wyatt said. “It’s hard for people to understand within the last 14 years oil prices traded at $10 a barrel. It's a commodity with a very volatile price history.”
STMM, which was founded in December of 2000 by Wyatt, a veteran investment professional, provides investment advisory services to high net worth individuals, trusts, estates, employee benefit plans, endowments, nonprofits and foundations. STMM is headquartered in San Antonio with offices in all of Texas’ major cities, and has 60 employees.
It owns both value and growth stocks with target allocations of 50% value, 40% growth, and 10% special situations. This allows STMM to participate in market trends set by both styles.
“Our goal is to have an all-cap core portfolio, balanced between value stocks and growth stocks,” said Wyatt.
STMM screens publicly traded stocks that have “very deep value,” meaning that they are trading typically at very low price to cash flow levels. It calls these stocks “ugly babies.”
“They’re really ugly, and we have to train our analyst to not try to find a catalyst that's going to make it come out of its slump, because if they're cheap enough they will,” Wyatt said.
The growth stock screen uses a completely different set of criteria than value stocks. “They're companies where the top line is growing, revenues are growing, and earnings are growing, and actually accelerating, so out of a very big database we're probably maximum screening out about 100 to 120 stocks.”
Each client portfolio is managed individually. “We don't utilize mutual funds or partnerships or commingled accounts,” Wyatt said. “Every client has their own separately managed account, so we can provide complete transparency, and also tax management.”
The core all-cap strategy can be customized to each client’s appetite for risk and diversification. “We employ a strategically diversified style, but you'll find so many people that think they understand diversification but don't,” said Wyatt. “Whether a client is really aggressive or really conservative, the way that we address that is through asset allocation, but our approach to investing in stocks is unique and is how we manage for all of our clients.”
Featured image via wikimedia common/Anthony92931 under creative commons
