Will the Quiet Summer Breeze Bring in a Steamy 2nd Half?

Rising contagion in Greece and Puerto Rico drove U.S. equity markets lower as we closed out the second quarter and entered July.  Here along the beautiful coast of South Carolina, most investors focused on these negative events within the global credit markets, and missed the positive local news.  On July 1, Moody’s Investors Service upgraded the City of Charleston Water and Sewer System revenue bonds to Aaa.  The system is now one of just 10 wastewater utility systems in the country to hold Moody’s highest possible rating.  This news went mostly unnoticed, masked by the cacophony of Greece and Puerto Rico.  Although news sources reported on these situations with typical fervor, neither should come as a surprise, as both entities have both been running out of money for years.

The equity markets seemed to remember this quickly and shrug off concern.  Within a week, the Dow marched back above 18,000.  Simultaneously, the S&P 500 volatility index (VIX), dropped throughout the month of June.  As of yesterday’s close, the VIX stood at 11.95.  Over the past ten years, there have only been three notable periods when the VIX stood lower; spring 2006, late 2006, and last summer.

The VIX merely measures expected volatility in either direction.  But this low level, combined with the market’s resilience to this summer’s geopolitical speedbump, is very possibly an indication that we have entered what will become a strong second half of 2015 for the equity markets.

Source: Yahoo! Finance © 2015 Pawleys Capital Management, LLC. All rights reserved.

Portfolio Improvement by with Home Depot – Extending Holding Periods

The Pawleys Dividend Fund has been long Home Depot stock since late 2010.  For the past four years, the total return figures for HD have been dizzying: +22% in 2011, +50% in 2012, +36% in 2013, and +30% in 2014.  It was the top performing holding for the Pawleys Dividend Fund in only one of those years – 2012.  Yet HD has been a solid contributor to the overall portfolio returns, and has helped keep our gross return figures ahead of the DJIA for each year.  We decided to break down the HD numbers on a daily basis to see if we could learn anything more.

For each year, the price movement on the stock generated the entire yearly gain in just a select number of trading days.  Traders moving in and out of the stock who were not long on those select days would have the return on their HD position reduced to zero.  What did we learn?  In 2011, the DJIA annualized total return was only 5%, while HD delivered +22%.  The entire total return could be attributed to just 6 trading days.  The markets were more robust during the other years, and the HD gains were a result of several days, not just a few.  Stock picking and extended holding periods become even more critical to delivering good performance in lackluster markets.

If we continue to hold HD during the next recession and stock market downturn – which we may or may not – we will crunch the numbers again to see how the daily returns break down in falling markets.  Stay tuned for more from the beautiful beaches of South Carolina!

Source: Yahoo! Finance

© 2015 Pawleys Investment Advisors, LLC. All rights reserved.

NEW Updated Pawleys Dividend Fund and Pawleys Growth Fund Results

NEW complete three-year performance through 2013: Pawleys Capital Funds

Last October, as a part of the Jobs Act, Congress gave a mandate to the SEC to lift the ban on hedge fund advertising.  While the structure of the Pawleys Dividend Fund and Pawleys Growth Fund classifies them as South Carolina hedge funds, the advisory fee is 0.75% compared to the hedge fund standard of 2% PLUS 20% of any profits.  The funds are both long-only domestic equity funds, and do not use any type of leverage.

If you are a real numbers-nut, here is additional detail about the fund performance, including performance benchmarking versus the Barclays Hedge Fund Index, historical performance net of fees, volatility and risk/reward ratios.

Pawleys Dividend Fund 2013

Pawleys Growth Fund 2013

© 2014 Pawleys Investment Advisors, LLC. All rights reserved.

Risks and Disclosures: 

This information regarding our services is not an offer of securities or investment advice and is provided solely for prospective clients to contact us.  Past performance does not indicate future results and you may incur losses.  

The Limited Partnership Interests offered hereby have not been registered under the United States Securities Act of 1933, as amended (the “Securities Act”) or any applicable state or foreign securities laws.  The Interest have not been approved or disapproved by the United States Securities and Exchange Commission (“SEC”) or any state or foreign regulatory authority nor has the SEC or any state or foreign regulatory authority passed upon the accuracy or adequacy of this private placement memorandum or endorsed the merits of this Offering.  Any representation to the contrary is unlawful.  Please contact Pawleys Capital Management, LLC to obtain a Private Placement Memorandum. An investment in one of the Pawleys Funds presents risks which are outlined in the Memorandum.   You must qualify as an accredited investor according to the Securities Act of 1933 (“the Act”).  Banks, insurance companies, registered investment companies, business development companies and small business investment companies meet the definition of accredited investor.  Natural persons must have an individual (or joint if married) net worth that exceeds $1 million excluding the primary residence, OR income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year.  Business entities qualify if all equity owners are accredited investors.  Trusts must have assets in excess of $5 million, and may not have been specifically formed to acquire the securities offered.  Charitable organizations, corporations or partnerships must have assets exceeding $5 million.  Please consult with your tax or legal counsel if you have any questions regarding Rule 506 of Regulation D of the Act.  Resale restrictions apply. 

If you do not qualify as an Accredited Investor, please contact us regarding our Advisory Services which are available with no minimum financial requirements.  Advisory clients enjoy enhanced customization of portfolio management and financial planning services.  Pawleys Investment Advisors, LLC is a Registered Investment Advisory Company – SEC Firm CRD #155199.