Michael Cuggino's Long-Term Capital Growth Strategy

"Investors looking for growth would be wise to have part of their portfolio in equities," says Michael Cuggino, President and Portfolio Manager of Permanent Portfolio Family of Funds  (FUND: PRPFX  ) in an interview with Kapitall. "Historically, and despite their volatility, they provide the best returns over time."

The billion-dollar question, of course, is how to approach the 4,800+ equities and 1,300+ exchange-traded funds on the market. Naturally, different investors have different ideas.

Here's why we took note of Cuggino's: His Permanent Portfolio is a five-star fund and one of the funds within the Permanent Portfolio Family of Funds, which ranks in the top 1% of its Morningstar category on a five and 10-year basis. It ranks in the top 5% of its Morningstar category on a one-year basis. It boasts roughly $17 billion in assets under management. Impressive, no?

Strategy
"We believe in long-term holdings. We're a low turnover kind of investing company versus a trading in stocks mentality, and we always look for long-term tax efficient gains in our equities. And we believe in diversification, so we invest broadly across multiple sectors."

Unlike most funds, Cuggino doesn't approach equities with a cookie-cutter set of technical requirements, nor does his firm actively buy and sell to catch the latest trends.

Instead, his team takes a macro-based, top-down approach and questions where sector growth is going to be. "Then we flip it and do research on companies that play on those areas. We use numerical and qualitative information: P/E growth rates, cash flow, earnings, CAPX, revenue growth, margins, and others. Then we combine it with subjective and qualitative information like management, ability to possess market leadership and create a product out of R&D and sell it on the marketplace... We're looking for a trigger to unlock any recognized undervaluations. We'll take information from anywhere to get there."

On taxes: "Get in and out of trades while considering tax. For long-term investors, taxes are one of the biggest costs they incur, and it's not always something they realize. We always think about the impact of taxes in our trading, and I think that somehow differentiates us from other firms."

Other considerations: "We don't invest in non-U.S. companies, but we do look for companies with significant non-U.S. revenue." He reasons that companies with foreign exposure probably have people on the ground with more information than us, so we can participate in those markets more efficiently through firms with channels already in place.

Words of wisdom
I asked Cuggino for some nuggets of advice for newbie investors:

  • An investor needs to consider what stage of life they're in, income needs, capacity to save, investment objectives, return expectations, and how much risk they are willing to accept.
  • Everyone needs exposure to equities, but the degree matters depending on how you answer the previous questions.
  • If you don't need much cash on hand, you may want to put it in more aggressive growth stocks and overweight equities, but if you need income, focus more on dividends and fixed income.
  • When to get out: Just like you build a case to invest, build a case to divest. If a company is missing expectations or is unsuccessful in its efforts, there's general malaise at the company or simply a lack of growth, and those would all be reasons to sell.

Top holdings
"Our view on the economy is that while we're definitely experiencing some slowdown here and abroad, our long-term prognosis is one that we should still be staying in these growth oriented stocks." To that end, his fund tends to gravitate toward more volatile growth names that react to markets. So there's an absence of consumer names, utilities, and defensive stocks.

Although, on that last note, many of the names in their current top holdings list (see below) have a semblance of defensive stocks. This is sensible enough, as an equally weighted portfolio will tend to favor the firms with a leading function in the current market climate. For example, Costco graduated to a top holding status because when times are tough, people tend to buy in bulk and go for price.

With that in mind, take a look at the top holdings of the Permanent Portfolio Family of Funds' Aggressive Growth Portfolio (PAGRX). Its goal is to outperform the S&P 500 index and remains fully invested in the stock market at all times. The fund currently holds about 40 names in total. 

List sorted by holding size. (Click here to access free, interactive tools to analyze these ideas.)

  1. Gilead Sciences
  2. Celgene
  3. HollyFrontier
  4. FedEx
  5. Wynn Resorts
  6. Mattel
  7. Costco Wholesale
  8. Amgen
  9. Disney
  10. Kansas City Southern
  11. Illinois Tool Works
  12. Harley Davidson
  13. Freeport-McMoRan Copper & Gold
  14. State Street
  15. Qualcomm

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.


Kapitall's Rebecca Lipman does not own any of the shares mentioned above.

The Motley Fool owns shares of Costco Wholesale, QUALCOMM, Freeport-McMoRan Copper & Gold, and Walt Disney. Motley Fool newsletter services have recommended buying shares of Gilead Sciences, Walt Disney, Mattel, FedEx, Costco Wholesale, and Illinois Tool Works. Motley Fool newsletter services have recommended creating a bear put spread position in Mattel. The Motley Fool has a disclosure policy.

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