Bets on Texas Pacific, St Joe powered best US equity funds in third quarter

Texas Pacific Land (Dover)

29/09/2023 19:49

By David Randall
       NEW YORK, Sept 28 (Reuters) - Big positions in a handful
of stocks helped a select number of U.S. value and small-cap
funds rocket higher in the third quarter while rising Treasury
yields dented the broad stock market. 
    Among the quarter's winners were funds that invested in
Texas Pacific Land  TPL.N , which rode the more than 30% jump in
the price of U.S. West Texas Intermediate crude (WTI)  CLc1 
since June to a 40% gain in the quarter, and Florida land
developer St Joe  JOE.N , which jumped 14% during the quarter
following strong earnings.   
    The $26 million Kinetics Spin-Off and Corp Rest Adv A
 LSHAX.O , which has half its assets in shares of Texas Pacific
Land, led all U.S. equity funds with a 25% gain for the quarter
through Thursday. The fund is down 11% for the year to date.
    The $1.3 billion Fairholme Fund  FAIRX.O , which has more
than 80% of its assets in shares of St Joe, was up 17% for the
quarter, while the $37 million Schwartz Value Focused Fund, with
large positions in both Texas Pacific and St Joe, was up nearly
15% for the quarter. 
    Overall, 15 out of the top 25 equity funds for the quarter
were either value or small-cap funds, according to Morningstar. 
    The outperformance of those managers came as both the
Russell 1000 Value  .RLV  index and the Russell 1000 Growth
 .RLG  fell 3.3% for the quarter, while the broad S&P 500  .SPX 
is on pace for a 2.7% decline, as higher bond yields weighed on
equity valuations. 
    The widely-held Invesco QQQ fund, which holds technology and
growth stocks that have powered much of the year's nearly 13%
gain in the S&P 500, fell 2.3% for the quarter. The Russell 2000
 .RUT  index of small cap stocks, meanwhile, lost 5% for the
quarter. 
        Fund managers may need to continue looking for selective
plays going into the final quarter of the year, as elevated bond
yields loom over stocks, said Randy Frederick, managing director
of trading and derivatives for the Schwab Center for Financial
Research. 
  
    "The market breadth has gotten weaker so earnings are going
to matter more going forward," he said. 
        Meanwhile, many bond funds were hit by a 
    sharp selloff
     in fixed income markets, as surging yields took U.S. core
bond funds down by an average of 3.4% for the quarter, according
to Morningstar. 
  
    U.S. government bond yields, which move inversely to prices,
 were set to end the quarter with their largest quarterly gain
in a year, weighing on investor returns after historic losses in
2022. 
    The $30 million Leader Short Term High Yield Bond  LCCMX.O 
fund was the top fixed income fund for the quarter, with a 7%
gain, according to Morningstar. 
    Mike Cirami, a portfolio manager of the $46 million Artisan
Global Unconstrained fund  APDPX.O  - among the quarter's
top-performing bond funds - said he expects to see more bond
market volatility as the Federal Reserve works to bring
inflation back down to its 2% target. 
    That may lead to more chances for contrarian plays on
emerging market debt issued by tourism-focused countries like
the Dominican Republic and the Bahamas if there is a broad
market selloff, he said. 
    "Spreads have been volatile in the EM space and a lot of
babies are being thrown out with the bath water," he said. 

 (Reporting by David Randall; Editing by Ira Iosebashvili)
 ((David.Randall@thomsonreuters.com; 646-223-6607; Reuters
Messaging: david.randall.thomsonreuters.com@reuters.net))