Peter Schiff’s EuroPac International Value Fund last year did something unusual in the investment world: It rocketed to No.1 on a Morningstar ranking from 100th place in 2015.
Its 18% return last year beat its peer group by 14.7%.
“A lot of managers don’t have the luxury of underperforming for a few years,” Schiff said in a phone interview.
“The way I make money is I bet against the conventional wisdom. Sometimes you have to wait for years.”
Euro Pacific Capital Inc. has its main operations in Newport Beach, where it manages $1.2 billion, including a handful of funds that range from $60 million to $80 million.
The funds are part of almost two dozen with operations in Orange County, according to Business Journal research on managed funds with under $150 million in assets (see chart, page 72).
The chart excludes funds from Newport Beach’s Pacific Investment Management Co. and Pacific Life Insurance Co., Orange County’s two dominant fund managers.
Outlier
Peter Schiff, who calls himself an outlier, believes that rising interest rates, trade deficits and government expenditures will cause the dollar to decline and that the government will eventually pay its bills through inflation.
He’s gained a fair amount of notoriety in the financial world for his views, which he’s highlighted in a series of books, as well as “The Peter Schiff Show,” a radio show he hosts.
“There’s a dollar crash coming, worse than the decline in the early 2000s, worse than even under Jimmy Carter,” Schiff said. “There will be a major crisis in the United States; 2008 wasn’t the end. That was the tip of the iceberg.”
Schiff correctly predicted the 2008 crash, but only profited somewhat because he didn’t established his funds until 2010. Their returns have been less than impressive, as some funds are still under water.
“When a fund goes from 100 to 1, that means that it can go back down to 100 just as fast as it went up,” said Loreen Gilbert, owner of WealthWise Financial Services in Irvine. “Peter Schiff is an opinionated money manager with a very concentrated portfolio. He plays only to the fear side. We try to manage expectations of people’s emotions.”
No to Doomsday
Schiff said his funds are for those who want to reduce the risks of a U.S. collapse. He rejected the idea of doomsday because his investors don’t merely buy gold.
“I’m putting people in stocks and countries with better macroeconomics than the United States,” he said.
Schiff began in the 1990s in a small Newport Beach office. When he started his portfolio funds, he placed them in Puerto Rico to reduce federal and state taxes. The company now employs 74, including 26 in Newport Beach.
The EuroPac International Value Fund, which has been run since its inception by portfolio manager James Nelson, seeks countries with improving economies, like Australia or New Zealand. It then picks undervalued companies located there and aims for a triple benefit: a dividend, an increasing stock value, and a rising foreign currency.
In 2015, the theory didn’t work as it finished 100th.
“We suffered from a period where you saw the dollar strengthen,” said Eric Steingruebner, the company’s national sales manager who oversees 30 advisers. “When the dollar does well, we do not do well. When the dollar does poorly, we do well.”
When gold jumped last year, the mining companies in the fund climbed, as well as the currencies in the countries where the fund invested.
“Going from No. 100 to No. 1 isn’t common, but it can happen with a specialized type of portfolio that is very different than rival funds,” said Gregg Wolper, an analyst at Morningstar who covers international funds. “When that sector is in favor, then it will naturally go to the top of the chart. When that favored area is out of favor, it can go very low.”
Another fund, EuroPac Gold, last year returned 73%, which placed it 10th in its Morningstar category. Schiff is bullish; his Value Fund is up 8.32% year to date.
“You have a lot of overvalued stocks and markets” in the U.S., he said. “I think I’ll beat my competitors by 20% because I’m an outlier.”
