What was to have been four rate hikes now looks to be two or less. Citing “global developments” (read: weakness), Fed chair Janet Yellen all but admitted the Fed cannot follow through on their forecasted course. The S&P 500 absolutely relished the Fed’s backtracking and reversed January’s -5.0% decline by gaining +6.8% in March to finish the 1st Q up +1.35%. As one might surmise, interest rate sensitive issues performed very well. Against the backdrop of sustained lower rates and slower global growth, the utility sector gained +14.5% and consumer staples posted a +4.9% return. Growth sectors of the market such as healthcare and financials posted losses for the Q.
Many of our electric holdings, e.g., DNP Select Income Fund, First Energy, Pinnacle West Capital, and Wells Fargo Advantage Utilities were up in the mid teens or more. Our 4Q 2015 purchase of a block of higher yielding preferred stocks is also working out well and has already witnessed some gains. Eaton and Stratasys gained after having been beaten up in previous quarters. Surprisingly, despite the bottom that oil prices seemed to have established in February, our energy holdings continued to suffer.
We spoke last Q about the need to buy when others are fearful. On that note, we initiated a position in a master limited partnership (MLP) that stores and transports crude oil, petroleum products, and natural gas liquids. The company is in the midst of rolling out great pipeline capacity which means increased revenues going forward. As a MLP, the company must pay out a majority of its earnings in dividends, so it yields a substantial 8.0%. At purchase, the stock was down -50% from its high as investors had sold off energy shares.
Bio-tech shares have become more attractive; an earlier bio price bubble has deflated and presidential candidates have been bashing high price points. With these lower prices, we bought shares in a profitable firm engaged in the development of an injectable collagen used to treat Dupuytren’s contracture and Peyronie’s disease. The company has numerous clinic trials underway for treatment of keloids, hypertrophic scars, scarred tendons, and glaucoma. It also has a development and license agreement with Endo Global Ventures for cosmetic uses of collagen. We additionally purchased shares in a bio-tech firm developing a reversing agent for blood thinners.
Gold Leaf is an independent Registered Investment Advisor that buys stocks/bonds in cash positive companies with sustainable competitive advantages. As an independent firm, Gold Leaf provides objective investment management. Our goal is to protect client assets on the downside while participating in most of the market’s upside.
April 1, 2016 Paul F. Rodgers, CFA
Gold Leaf does not provide legal, accounting, or tax advice. Please consult your personal lawyer or accountant.