Investing in Dividend-Paying Companies in the Midcap Space

“Paul Hogan talks about his firm’s equity-income 
fund. Mr. Hogan says the objective of the fund is

that at least 80% of the companies have to pay a
dividend. Additionally, the fund is in the midcap
space. Mr. Hogan says midcap businesses tend to
grow faster than large-cap companies. He says
right now is a great time to own an equity-income
fund because it can limit some of the downside risk
while still offering equity exposure and the
opportunity to participate in the upside as the
market moves higher.”  Read The Wall Street Transcript article.

 

Please see Fenimore disclosure.

Generation to Generation

Kevin T. Smith, CFP®, CTFA, CDFA

Discussing the generational transfer of your wealth with your adult children may feel as uncomfortable as talking politics at a dinner party. There is no question that the Greatest Generation — and those that came before — kept their financial information much closer to the vest, while Boomers have been more apt to discuss these affairs with their children. It is obviously a personal decision if you want this discussion to take place.

Here are some considerations when deciding whether or not, or how to broach this sensitive topic with your children:

  • Will the relationship change dramatically if beneficiaries are made aware of their future inheritance or lack thereof? Of course, this can be difficult to predict.
  • Will it be advantageous to begin gifting assets during your lifetime?
  • Are you anticipating that your children will be involved in your finances as, for example, a trustee or POA (Power of Attorney) while you are alive?
  • Is there family pressure to disclose your financial affairs? If so, this can be a sign to proceed with caution.
  • Is your next generation financially sound enough not to need or want the inheritance? If the answer is yes, you may be able to do multi-generation planning such as college funding, generation-skipping trusts, or “stretching” IRAs.

Provide a Roadmap
If the decision is made not to include the next generation in your planning, it is still wise to provide your spouse and/or children with the names and contact information of your professional advisors in case of an emergency. These commonly include:

  • Attorney (legal and estate planning documents)
  • Accountant (copies of previous years’ tax returns which can identify where accounts are held)
  • Financial Advisors (statements on investment accounts, IRAs)

I recommend that you review the list annually with those who would be involved so that when the time comes, your family knows who to alert. Some honest, and admittedly morbid, questions to ask yourself are: How will my affairs be handled if I don’t wake up tomorrow? Will my spouse/children know who to contact? Will they have access to cash immediately from non-probate assets to cover short-term expenses?

It’s Your Decision and Yours Alone
As a client advisor, I advocate for the discussion among family on the transfer of assets whenever possible and encourage clients to include the second and, when appropriate, even third generations in our meetings. This approach can help provide for a smoother, more tax-efficient transfer of wealth to your loved ones. It can also create opportunities to educate about the successful moves or missteps that you made with your finances. Remember — you are the one who worked and saved for your assets and no one will appreciate the hard work and effort as much as you!

Please see Fenimore disclosure.

What’s the Latest on Commercial Real Estate?

A couple of our Investment Research Analysts attended REITWeek® 2017: NAREIT’s Investor Forum® in early June. They joined other institutional investors who were gathered in New York City to gain insights from NAREIT* Corporate Members about opportunities in the U.S. commercial real estate market. In total, there were 130+ company presentations. A few noteworthy takeaways emerged.

Good Setting for One-on-One Meetings: As part of Fenimore’s steadfast investment process, it’s very important that we get to know company management as well as possible. Each year, our analysts find that NAREIT’s Investor Forum® is a good setting to meet with corporate leaders. In fact, they had face-to-face meetings with three of our holdings’ CEOs and discussed key business topics along with operational assessments. They also spoke with many other businesses.

What a Difference a Year Makes: The main change from last year is the current concern about retail real estate. We see this all around us as retail customers make a seismic shift from buying certain products at brick-and-mortar stores to online. As a result, there is angst that retail tenants will not be able to pay their rent and this has negatively impacted the stock prices of REITs focused on retail clients.

Solid Environment: No one knows what tomorrow will bring, but commercial real estate is doing well overall. Interest rates are low, financing is readily available, occupancy rates are high, and rent levels are good.

* “NAREIT®, the National Association of Real Estate Investment Trusts®, is the worldwide representative voice for REITs, or Real Estate Investment Trusts, and publicly traded real estate companies with an interest in U.S. real estate and capital markets.”

Please see Fenimore disclosure.

Fieldwork: Firsthand Research

The investment landscape constantly changes. That is why we continue to stick to our proven, time-tested, repeatable investment approach. This “business first” process has strong economic underpinnings because, over time, stock prices tend to follow earnings growth and corporate earnings have historically grown faster than inflation.

Last year, our Research Team visited or spoke with more than 175 companies and met with managers, competitors, and customers in pursuit of knowing our investments as well as possible. In 2017 (through the end of May), that number is already 140 including several industry conferences in just the past couple of weeks.

We want to know management very well and it’s important to see how their operational view varies over time — especially during periods of adversity. Some topics we address are: business and industry trends, the competitive environment, financial goals, and capital allocation decisions.

We believe this in-depth research — a relentless pursuit of high-quality businesses with excellent management teams — combined with patient and price-sensitive portfolio management, is the best way to preserve and grow wealth over the long term. It helped us greatly in the past four decades and it should continue to help us despite the perpetual changes all around us.

Please see Fenimore disclosure.

Buying High-Quality Midcaps at a Discount to Their Value

“John D. Fox discusses Fenimore Asset Management and the FAM Value Fund. As a value investor, Mr. Fox aims to invest in high-quality companies at a discount to what he thinks they are worth. The FAM Value Fund primarily holds mid-cap companies but does have some large- and small-cap names. The portfolio is fairly concentrated. It holds less than 40 stocks, and about 50% of the money is invested in 14 of those stocks. When looking for a high-quality company, Mr. Fox wants a business with strong financials, manageable
debt, high returns on capital and good free cash flow. He also favors honest management teams who are good allocators of capital.” Read The Wall Street Transcript article.

 

Please see Fenimore disclosure.

How are Golf and Investing Similar?

“Scoring comes from being able to preserve what you’ve got and play your smart shots when you need to play them and not do stupid things, and take advantage of things when you have them.”    — Jack Nicklaus
Read the spring 2017 Letter from Cobleskill.

 

Please see Fenimore disclosure.