Tobias Carlisle, Founder & Portfolio Manager of The Acquirers Fund, joined The Final Round to discuss his outlook for the market and why he is betting on value plays.
JEN ROGERS: Sometimes, when you talk about the market, like the last few months, it's just, like, five stocks doing everything. And now we've got this breadth. You're talking about value being the big long. Is it finally value's moment?
TOBIAS CARLISLE: It's hard to say if it's finally here, but I would say that the hemorrhaging has stopped since about May, which is, that's a huge positive for value. And the portfolio when I look at it now, I think on just about any measure, it doesn't require a multiple rerating, sort of positively carried above the market and above the 10-year.
And the trade looks very asymmetric because the growth rate is now across sales, earnings, cash flow, book value are all higher than the market. So I think without any multiple rerating, you're still likely to get performance that is better than the market.
But then, if I look across the portfolio, they're all roughly half the market multiples, across those same metrics. And if there's any mean reversion at all, then that leads to hopefully higher returns again.
DAN ROBERTS: Toby, Dan Roberts here. I know you're talking about value, value, value right now. But are you really convinced that big, big growth names-- and what I really mean are the mega tech names-- are done surging?
I mean, FAANG was kind of the hot popular trade long before the pandemic. Then, in the pandemic, we saw those names surge, along with some newer tech names that were seen as stay-at-home plays. Even post-pandemic, you know, it's hard to believe that the big gains for those names are done.
TOBIAS CARLISLE: Yeah, I don't know if the-- I don't know is the honest answer. All I would say is that for many of those names, they've-- you're paying enormous multiples for that growth and for not a great deal of revenue and earnings.
And so they really do need to execute on that growth. The reinvestment runway is long for the payback. The payback period is very, very long. It has to sort of earn above market for this extended period of time.
Some of them are going to be able to do it. Some of them are future Amazons. Some of them are future FAANGs. For me, they're just not going to get there.
JARED BLIKRE: Hey, Toby, I've got a question then. So if we're not-- if we're looking in the value complex and we're expecting these stocks to go up, I think-- I mean, for me, anyway, and maybe it's different in your mind that it's kind of a bet on the expansion of the yield curve. And therefore, you're subject to the whims of the Fed.
There's been some talk as recent as today about the Fed perhaps needing to do some kind of operation twist. And that would put them in the-- that would make them active in the market for controlling longer term rates. How does that play, if at all, into your calculus?
TOBIAS CARLISLE: Look I think that it's a compelling argument from a theoretical perspective. But there's no research that backs that up. And [INAUDIBLE] looked at it, and they weren't really able to find much of a relationship between interest rates and value.
I would just say, if I look at the portfolio, the criticism is always that these value stocks require a multiple rerating. And they're not going to get it because they're not the kind of names that attract attention. But I don't think that they need that multiple rerating anymore for them to outperform because they're already delivering yields that are so far in excess of the market.
And then with growth now, because the compression in many of these names has pushed some very high quality names with great balance sheets, great cash flows, lots of growth into that bucket. So I think that even without the multiple rerating, they are set to outperform.
JEN ROGERS: I'm curious. Do you care at all about stimulus that we keep talking about, that everyone's obsessed with, or the election or anything? Or are you-- do you just have what you've got, you see what's happening with the value, and you're good, you're set?
TOBIAS CARLISLE: I just think it's very hard to know how that impacts the portfolio. I don't know that it benefits one stock over another. I think that to the extent that it helps folks who are consumers and the companies that face those sort of consumers, I think that that's a good thing.
But it's just difficult to know the impact. And I think sometimes when I can't understand the impact, I think it's just something that has to be set aside. And you say, well, it's going to have some impact, but we don't know what it's going to be.
JEN ROGERS: Hm, OK, something to think about. Tobias Carlisle, founder and portfolio manager of the Acquirers Fund, have a great weekend.