Donald Trump made much of Hillary Clinton’s ties to Wall Street, but since winning the presidential election he has proved himself to be a good friend to financials. The sector has been the biggest beneficiary of the Trump bump, as investors tipped his promised deregulation and tax reforms to boost the previously unloved sector.
And they have been broadly rewarded. One year on from the presidential election, the S&P 500 Financial Select Sector index was up 39.4%, ahead of the broader market.
But as with all things Trump, it has not been a smooth ride. As rhetoric hit reality and major reform stalled, some investors sold up, but not Citywire AAA-rated Anton Schutz.
‘I think longer-term, just by being there and having your line in the water, you’re going to get rewarded. My belief was that the Fed was going to raise interest rates, so on a macro basis I still remained fully invested… and I believed we would get some sort of a tax package,’ he said.
‘Above all of the legislative issues out there, I said that [tax reform] was the one that is going to get some traction, so I didn’t take my line out of the water, I left it in.’
He is still hopeful of seeing progress on tax reform before the end of the year, as politicians want to return to their constituents for the holiday with something to show.
Banking big dog
Schutz is no latecomer to financials, having specialized in the sector almost his entire career. He founded the $1.2 billion Rochester, New York-based asset manager Mendon Capital Advisors in 1996, after a 10-year run in the special investments division of Chase Manhattan Bank’s asset management arm.
Today, Mendon Capital Advisors manages two mutual funds, a managed account, limited partnerships and has Ucits offerings on the horizon. Schutz, who is president and chief investment officer of the firm, has an investment team of five – one analyst in Atlanta, two in New York City and two traders in Rochester.
The firm partnered with RMB Capital Management for the first time in April 2014 and began subadvising the RMB Mendon Financial Services fund and the RMB Mendon Financial Long/Short fund on July 1, 2016.
The RMB Mendon Financial Services fund is a concentrated portfolio of 65 holdings, ranked first out of 21 financial services funds tracked by Citywire for three-year total returns to the end of September. Over that time, it is up 85.8%, more than doubling the 40.5% return of the average financial services fund.
‘Anton and his team have skillfully managed their strategies based on their fundamental research and disciplined process, and our confidence in their approach was a key factor in our decision to expand into the mutual fund business,’ said Richard Burridge Jr, founding partner, chief executive and chief investment officer of RMB Capital.
One key theme Schutz has been playing is consolidation in the sector – something he believes his previous career gave him an edge in. ‘My background of having been at a bank is relatively unique compared with a lot of portfolio managers who get trained as money managers. Actually seeing the operating inside of a bank is something different,’ he said.
‘One of the things that really struck me in the industry was how overbanked we were and how consolidation needed to be a massive driver moving forward, as well as that returns were going to be made by participating in that.’
One of Schutz’s holdings that has benefited from this M&A activity is Pinnacle Financial, which announced a deal earlier this year to buy the Bank of North Carolina. The deal recently closed, boosting the combined bank’s stock price.
‘They’ve under-promised and over-delivered so far and the stock has finally reacted more positively,’ Schutz said.
While macro trends such as tax reform play a part in Schutz’s strategy, he is broadly a bottom-up investor, placing a heavy emphasis on firms’ management teams.
‘I want them to have skin in the game, so they’re indifferent to that mountain of gold, and so that it’ snot the salary that drives them but the total return, ’he said. ‘Quite simply, I want management to be capitalist. Their job is to make me money and I really don’t care how they do it… You keep running, create great earnings and that’s wonderful, or tomorrow someone comes in and lays out a mountain of gold in front of you and you sell to a bigger company.’