Quarterly Client Letter – 3rd Quarter 2020

The third quarter of 2020 enjoyed a continuation of a rebound in stock prices around the world.  Stocks marched upwards in July and August, before retreating in September.  Still, returns for the quarter were solidly positive.  The S&P 500 is now positive year-to-date, while most of our accounts are still modestly down, as both international value funds and small-cap value funds lagged. 

The S&P 500, as noted, continued to lead the way, as it is dominated by large-cap growth stocks (more on this below).  Strangely, this is in the face of an economy that is nowhere near recovering to pre-COVID levels.  U.S. Gross Domestic Product (GDP) was down a staggering 31.4% in the 2nd quarter, is expected to rebound +/-20% in the third quarter, but still be down around 8% for the year.  Not the economy you would expect to accompany a record stock market. 

One explanation for this, in our view, is that support for the market has been bolstered by fiscal stimulus and monetary policy.  With yields on Treasuries, CDs, and savings accounts at or near zero, there really is no alternative to stocks for investors seeking returns. 

However, it is worth noting that under the surface, there are clear winners and losers, haves and have-nots, and the index returns mask a somewhat less rosy reality. 

Even within the S&P 500 itself, the “average” stock is down for the year, and more than half the stocks within the index are down for the year.  It just so happens that the stocks doing best are more heavily weighted within the index.  The top 5 companies in the index are up around 30% year-to-date while the rest of the index is down 5%.  This has pushed the weighting of the top 5 stocks to 22% of the index surpassing the 18% weighting the top 5 companies were of the index at the peak of the internet bubble in 2000.

Likewise, “style-box” analysis reveals a huge disparity between both large and small and growth and value, where large growth is up 24% and small value is down 22%, year-to-date.  We’ve never seen disparities of that magnitude. 

This phenomenon evidences itself within our actively-managed fund portfolios, where the gulf between our winners and losers is as wide as we can recall, with individual fund returns year-to-date ranging from +53% (Artisan Developing World) to -28% (Vulcan Value Partners Small Cap).  Those two, neither of which are widely represented across client accounts, are the extremes, but even amongst our more widely held positions, there were winners (Akre Focus Fund, Sequoia Fund) and losers (Oakmark International, Dodge & Cox International).  Rest assured, we regularly take long and critical looks at those that are persisting struggling against their benchmarks. 

While our exposure to international, small caps and value stocks in general has cost us some relative performance, we stand by the principals of diversification in an effort to spread risk, to prepare for a wide range of unknown future outcomes, rather than predict those outcomes and wager accordingly.  Likewise, we are frequently asked about what the outcome of the November election might mean for markets.  Again, we think our actively managed and diversified portfolios are well-suited to perform in an uncertain environment.   

One bright spot for us has been our internally managed individual stock portfolios, which were up around 6% year-to-date, on average.  We have gained some confidence around our ability to deliver this service, and welcome inquiries from those of you not currently participating. 

In a final note, we just completed the sale of Tim Medley’s remaining firm ownership to the three of us, and he is now fully retired from his transitional role with the firm.  We appreciate his mentorship and guidance over the years, are grateful for the opportunity to continue the legacy of excellence he established and are energized and excited to build upon that legacy going forward. 

Eddie Carlisle

Doug Muenzenmay

Julius Ridgway

*Source:  J.P. Morgan Asset Management Guide to the Markets



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Sissy Moreland

Client Services Trading

A graduate of Mississippi State University, Sissy joined Medley & Brown in 2017, but her career goes all the way back to 1990 when she was the merchandise director for four years at Phi Theta Kappa. She was also Customer Service Manager and Marketing Development Manager at Crystal Springs Apparel from 1994 to 2005. From 2005 to 2017, she was Manager of Sales Administration at Skyhawke Technologies. Thanks to her considerable operations and administrative experience, Sissy oversees trading and assists with most back-office operations for the firm. Staying so busy at work requires Sissy to recharge her batteries outside the office from time to time which she does by running, reading, enjoying a leisurely brunch, and watching the Saints play football.

Beth Braswell

Client Services Coordinator

Beth spent four years in the investment world before joining Medley & Brown in 2004 as our operations coordinator. She and her husband Robbie are busy parents to identical triplet daughters, so not surprisingly, some of Beth’s favorite things to do are napping and relaxing on the beach when she actually finds the time. Beth also enjoys taking short walks to the pool, attending concerts, and going out of town for long weekends. Beth loves her Mississippi State bulldogs and currently has four dogs, three cats, and three grandcats because having three children simply isn’t enough. No wonder her operational skills are so exceptional.

Doug Muenzenmay, CFA, CFP®

Senior Advisor   |   Principal

When he’s not enjoying the outdoors or attending his children’s school and sporting events, you can find Doug studiously researching investments for his clients. His career began in 1991 after graduating from the University of Iowa with a bachelor’s degree in economics. He spent 17 years in trust investments at three different banks before joining Medley & Brown in 2010. Doug also got his MBA from Mississippi College and served as an adjunct professor in finance there from 2007 to 2013. Married to his wife Sharon since 2001, Doug is a Chartered Financial Analyst (CFA), Certified Financial Planner (CFP), and a board member of the CFA Society of Mississippi.

Eddie Carlisle, CFP®

Senior Advisor  |   Principal  |  Chief Compliance Officer

Eddie’s extensive education includes a B.S.B.A. in accounting, with special distinction, from Mississippi College in 1994, along with a J.D. from Vanderbilt University and LL.M. (Master of Laws) in taxation from the University of Florida. But it’s what he’s learned outside of school and work that really stands out. He’s an Eagle Scout, which taught him a great deal about honesty and hard work from an early age. He learned even more earning black belts in Taekwondo, Hapkido, and Hanmudo. Oh, and he studies the Korean language in his spare time as well. Additionally, Eddie serves as an adult leader for Scout Troop 164 in Madison. He is a past board member of Hope Hollow Ministries, the Central Mississippi Down Syndrome Society, and the Mississippi Corporate Counsel Association. Eddie is currently a board member of the Woodward Hines Education Foundation. He enjoys spending time with his wife, Sarah, and their three children—Andrew, Caroline, and Emma. 

Julius Ridgway

Senior Advisor   |   Principal

Judging from his background, you’d think investments and other financial matters were all Julius cares about. After all, he has two decades of direct investment experience and spent the previous ten years involved in banking and real estate. Julius also received a masters degree from the London School of Economics in 1998, an MBA from Millsaps College in 1993, and a history degree from the University of Mississippi in 1990. But his true passions include driving sports cars on racetracks or twisty mountain roads, running ultramarathons, and taking road trips with his wife and son. He’s worked here since 2002 as a Chartered Financial Analyst (CFA) and member of the CFA Institute while also serving as an adjunct instructor at Millsaps College and board member of New Stage Theatre. It takes major dedication to tackle all these responsibilities—sort of like training for all those long distant runs—but Julius enjoys every minute of the grind. And when it’s time to slow down, Julius finds the best way to clear his head is taking long hikes in the mountains on all those road trips.