The South Dakota Investment Council manages the state’s pension, one of the best in the country based on funding status. It slashed positions in Carnival, Royal Caribbean, and Nowegian Cruise Lines in the second quarter. It bought up GM and Exxon Mobil stock.
Sam Greenwood/Getty ImagesOne of America’s top public pension managers made substantial changes to its stock investments in the second quarter.
The South Dakota Investment Council manages investment of the state’s financial assets, 90% of which was the $12.2 billion South Dakota Retirement System, as of June 30. The SDIC slashed positions in embattled cruise-line stocks Carnival (ticker: CCL), Royal Caribbean Group (RCL), and Norwegian Cruise Line Holdings (NCLH) in the second quarter. It also substantially raised investments in General Motors (GM) and Exxon Mobil (XOM) stock. The agency disclosed the trades, among others, in a form it filed with the Securities and Exchange Commission.
The SDIC didn’t respond to a request for comment on its stock trades. The pension manager has shown that it is one of the savviest pension managers in the U.S. from a funding standpoint. South Dakota Retirement System reported an actuarial value funded ratio of 100.1% as of June 30, 2019; in other words, the pension had enough assets to meet each dollar’s worth of obligations and have a tenth of a cent left over. That’s far better than the pensions of most states. A Pew Charitable Trusts study using 2017 data found that South Dakota’s was one the top three best-funded state pensions, and that the average pension was short 31 cents for each dollar of obligations.
SDIC slashed positions in Carnival, Royal Caribbean, and Norwegian stock by 77%, 47%, and 72%, respectively, in the second quarter. As of June 30, it owned 82,486 Carnival shares, 49,605 Royal Caribbean shares, and 256,560 Norwegian shares.
All three cruise-line stocks lost 75% to 80% of their market value in the first quarter as the coronavirus pandemic roiled markets and docked ships. But Royal Caribbean stock is now down only 47% year to date through Friday’s close, while shares of Carnival and Norwegian sport year-to-date drops of about 70%. In comparison, the S&P 500 index, a broad measure of the market, is up 9.2% for the year to date.
In a research report earlier this month, J.P. Morgan analyst Brandt Montour lowered estimates for Royal Caribbean “to reflect a slower recovery than we were previously forecasting.” He also trimmed the price target on the stock to $67 from $72 but maintained an Overweight rating because “a plethora of bad news is priced in here and sentiment likely can’t get any worse.” Montour added, “We also continue to believe Royal Caribbean is poised to gain market share in cruise’s eventual recovery.” The company “will likely benefit the most from China opening first, and we also believe Perfect Day will be an important competitive advantage when the U.S. opens with limited ports of call.” Perfect Day at CoCoCay is Royal Caribbean’s exclusive experience with beaches, a lagoon, a water park, and restaurants.
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SDIC made a big bet on GM by buying 158,370 additional shares of the auto maker in the second quarter, lifting its stake to 200,900 shares.
GM stock has surged 18.7% so far in the third quarter, but remains down 18% so far this year.
In June, we highlighted GM’s Mary Barra as a top CEO. “Thanks in large part to Barra’s retooling, GM has mounted an impressive turnaround, and is expected to post a profit in this pandemic-scarred year,” we wrote. We’ve also argued that GM stock is a better buy than Tesla (TSLA) stock.
The pension manager also bought 214,810 more shares of Exxon to lift its investment to 721,235 shares at the end of June.
Exxon stock has tumbled 41.7% year to date, including a 9.0% drop so far in the third quarter.
Exxon was dropped from the Dow Jones Industrial Average after being a component of the index for more than eight decades. At the end of July, the company’s second-quarter report missed expectations.
Inside Scoop is a regular Barron’s feature covering stock transactions by corporate executives and board members—so-called insiders—as well as large shareholders, politicians, and other prominent figures. Due to their insider status, these investors are required to disclose stock trades with the Securities and Exchange Commission or other regulatory groups.
Write to Ed Lin at edward.lin@barrons.com and follow @BarronsEdLin.
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August 31, 2020 at 06:00PM
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A Top U.S. Pension Sold Off Cruise Stocks. It Bought GM and Exxon Stock. - Barron's
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