Dividend Select Commentary – 2Q18
After posting small losses to start the year, value stocks, in general, and our Dividend Strategy, in particular, posted slight gains in the second quarter to close out the first half unchanged. The Argent Dividend Select Strategy returned 1.2% (net of fees) for the second quarter, in line with the Russell 1000® Value Index return of 1.2%. The strategy currently maintains a 3.0% yield, ahead of the 1.9% yield for the S&P 500 and 2.6% for the Russell 1000 Value.
With the second quarter and the first half of 2018 now behind us, we’ve been reflecting on the importance of a disciplined investment strategy. A solid strategy removes emotion from the investment process and helps clients understand how we make decisions to hopefully produce solid, long-term results. Over the course of this year, momentum stocks such as Amazon and Netflix have led, with their gains accelerating in the second quarter despite valuation metrics that are extremely high by almost any standard. To help put things into perspective, Goldman Sachs recently noted that Amazon alone accounted for 40% of the S&P’s year-to-date gains. These stocks surely have sizzle, but to us stocks such as Amazon and Netflix are much too expensive to have a favorable risk-reward. While it is human nature to want to jump into an investment that is already at the top of its game, we, at Argent, are looking for the diamonds in the rough that come at better prices. We get especially excited when we see change in a company or industry that has been unloved for a period of time.
Last quarter we discussed retail as one of those unloved industries that is seeing positive change. Our process recently led us to Williams-Sonoma (WSM), a retail company that sells kitchenware and home furnishings under a portfolio of brands including Pottery Barn, Williams-Sonoma, Williams-Sonoma Home and West Elm. Same store sales had been lagging for Williams-Sonoma stores between 2015 and 2017, but the company has undergone significant store changes to remedy the situation. Importantly, the company also worked to lower its shipping and product costs in an effort to become more competitive. In regard to valuation, Williams-Sonoma is selling at a compelling valuation – it is inexpensive relative to its industry and to its historical trading range. While an investor never knows for sure if company changes will play out favorably, the odds for Williams-Sonoma are good.
To use a maxim from hockey star Wayne Gretzky, at Argent we want to “skate to where the puck is going, not where it has been.” Our process assists us with that – taking most of the emotion out of the investment process and moving us into names where the catalyst has not yet played out. We are confident that following the investment process we have employed since our inception twenty years ago will continue to lead us to the best names for our clients.
As always, we appreciate your interest in Argent Capital Management. We have four very successful equity strategies – Large Cap U.S., Small Cap U.S., Dividend Select, and Mid Cap U.S. We are very proud of all, and if you have questions on any of these, or know others who might have an interest in our strategies and mailings, please call us.
Scott Harrison, CFA
This is supplied as supplemental information to the composite disclosures presented later in this document. Past performance is no guarantee of future results. The information provided in this report should not be considered a recommendation to purchase or sell any particular security. You should not assume that investments in any securities were or will be profitable. A list of stocks recommended by Argent in the previous year is available upon request. Views expressed herein represent the opinion of the portfolio manager as of the date above and are subject to change.