Charles K. Bobrinskoy manages Ariel Investment’s focused value strategy of all-cap stocks. Before joining Ariel in 2004 he spent 21 years at Salomon Brothers on the investment banking side. He recently appeared on CNBC and shared some general investing advice as well as two interesting picks from his portfolio.
Bobrinskoy advised to differentiate between what you are buying. The S&P 500 index has been very strong, but there is a paradigm shift going on. The S&P 500 has been led by the FANGs (Facebook, Apple, Netflix, Google). Now we have an overpriced S&P 500 and overpriced indexes in general.
You need to be very specific in what you are buying. The S&P 500 could underperform by a lot.
Big indexes could underperform by a lot.
Bobrinksoy thinks it will all end with Amazon. In his view, Amazon has been destructive through pricing and putting people out of business. Trump has been asking about Amazon and Amazon has been mentioned by the Fed as a deflationary force. The risk is the administration goes after Amazon.
If I understand Bobrinskoy correctly, if that happens the market would quickly turn away from the untouchable FANG trade and start weighing actual current earnings.
"We love stocks that aren’t in indexes." he said.
Just like Murray Stahl (Trades, Portfolio) at Horizon Kinetics (who’s extremely wary of the shift towards indexation), Bobrinksoy doesn’t like names that are omnipresesnt in indexes. Instead he likes names that aren’t in many indexes at all.
One category that’s underrepresented in indices is partnership structures like Lazard (LGI, Financial) and KKR (KKR, Financial). These come with tax complications, which is why indexes avoid them like the plague. Usually they don’t have a lot of float either, which is necessary for ETFs as well.
KKR
KKR is Bobrinskoy’s favorite. It trades at 9x earnings because it can't be bought by indexes. KKR is also unique among private equity peers as it retains more of its earnings. It pays a lower distribution rate (it would be called a dividend if it weren’t a partnership) but it reinvests in investment opportunities alongside partners. Given that it generally attains a very high rate of return on investment, that’s a very attractive feature. Just like the other major private equity groups, it has a very high rate of insider ownership. Both founders and high-up executives have a lot of stock and don't like to give it up.
Lazard
Lazard advises clients globally on strategy and financial matters including M&A, restructuring, capital structure and capital raising. It is also a major asset management firm that is distributed globally and invests globally.
Lazard trades at just 4.2x EV/EBIT. While it's a high-margin, capital-light business model.
To hear Bobrinskoy about his favorite investments, watch the CNBC clip embedded below:
Need to be stock-specific here as S&P 500 is overpriced, says expert from CNBC.
Disclosure: Author is long KKR.
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