Value Line Capital Appreciation Fund featuring Portfolio Manager Cindy Starke
Portfolio Manager Cindy Starke discusses how she attempts to mitigate risk while finding relative opportunity for the Capital Appreciation Fund.
ROB: Hello, I'm Rob Coursey, Regional Sales Director for the Value Line Funds. With so much discussion around interest rates, many investors anticipate higher levels of income, yet they still desire capital appreciation. Now joining me today is Cindy Starke, she's a twenty-year industry veteran and also the portfolio manager for Value Line Income and Growth Fund. Now, the Fund is a flexible portfolio comprised of equities and high quality fixed income. So Cindy, thank you so much for joining me today.
CINDY: Thanks Rob, it's great to be here.
ROB: Now, Cindy, the first question I have for you, the Value Line Income and Growth Fund often has been thought of for its favorable risk-adjusted performance. But now the markets have gotten quite volatile, so can you talk a little bit about how you plan to mitigate the risk on the equity side of the portfolio?
CINDY: Sure, that's a great question. The way we mitigate risk on the equity side of the portfolio is really to build a diversified portfolio of high-quality companies that we really know well. We really focus on owning companies for the longer term and focus on companies that have higher rates of sales and earnings growth higher than the market. To give you an idea of how we stack up versus the Index, the companies in the Fund are growing their sales at about 11% which is nearly double the rate of the S&P 500 and then on the projected earnings growth front, the companies in the Fund are expected to grow their earnings at 15% over the next three to five years which really stacks up nicely, again, against the S&P 500 which is estimated to grow at about 11%.
The reason why that's important to us is earnings growth is really one of the primary drivers of the stock's performance over the longer term. So we like to keep our earnings growth rate high and generally higher than the Index. And one other thing I would add is during periods of volatility, we generally use it as an opportunity to buy good companies on sale, to add to some of our stronger positions. Really it's a chance to upgrade the portfolio.
ROB: Cindy, also can you talk to me a little bit about the current allocation and how it reflects your views on the relative opportunity that exists between stocks and bonds?
CINDY: Sure. The Fund has historically ranged from equities that have been as low as 50% to as high as 80%. Right now the Fund has, we're in the upper 70s for equities with the balance invested in fixed income and cash. We feel great about equities because we're still finding many opportunities for good growth companies that have high rates of growth, very visible growth. Also we feel comfortable about the U.S. economy. We're definitely on a recovery path, I feel like we're on firm footing.
As far as the fixed income portion of the portfolio, as we get closer to a Fed interest rate hike, we feel it's prudent to maintain a smaller weighting as we go into this cycle but overall we feel that equities are poised to outperform fixed income over the next six to twelve months on a total return basis.
ROB: Could you please share a little bit about where you think you'll find your best opportunities in the market? Perhaps also share some of the areas that you're finding less attractive.
CINDY: Sure. Being that the economy is still in a slower growth environment and we have a bias definitely towards higher sales and earnings growth stories, we're finding a lot of great attractive opportunities in health care, consumer discretionary and technology. We've actually allocated a lot more of the Fund's capital into these sectors over the past year and we are overweight the S&P 500 Index in those sectors. We like these sectors because we've been able to find less cyclical growth stories, really like longer term growth stories with very visible trends.
On sectors that we pull back or reduced our exposure, it's been in energy and utilities. In the energy sector, we really just reduced our exposure there just because we don't know what the price of oil is going to be and the impact that could have on our companies so we reduced our exposure by a good deal and the utility sectors we also reduced our exposure because it's a very interest rate sensitive sector. And so as we get into an interest rate hike increase, we figured the sector would likely sell off as well as the shares are pretty fairly valued.
ROB: Okay. Great. Well, Cindy, thank you so much for sharing your time today.
CINDY: You're welcome.
ROB: I'm Rob Coursey and thank you for your interest in the Value Line Funds.
There are risks associated with investing in small and mid cap stocks, which tend to be more volatile and less liquid than stocks of large companies, including the risk of price fluctuations.
The performance data quoted herein represents past performance and does not guarantee future results. Market volatility can dramatically impact the fund's short term performance. Current performance may be lower or higher than figures shown. The investment return and principal value will fluctuate so that an investor's shares, when redeemed may be worth more or less than their original cost. Past performance data through the most recent month end is available at vlfunds.com or by calling 800.243.2729.