Laffer Investments, Nashville, Tenn., uses macrofundamentals to build its portfolios.
It's a macro, top-down approach that culls its stocks by using both screens and certain selection factors, said Arthur Laffer Jr., president of the 3-year-old money management firm. The chairman and chief investment officer is his father Arthur Laffer, who develops the strategies. The senior Mr. Laffer was chief economic adviser under President Reagan and the founder of supply-side economics; he believes economic policy drives the behavior of markets, which in turn determines asset returns.
"We use basic economic factors to pick the stocks for our flagship Macro 100 portfolio, a large-cap core equity fund," said the younger Mr. Laffer. "We use basic economic factors such as interest rates, currency and locations of companies, both in terms of states and countries, to rank the stocks in the S&P 500. Using those rankings, we buy the top 100 stocks in the index."
The firm considers such economic information as state fiscal policy, which can affect companies' costs, particularly in places like California, where workmen's compensation costs tripled in the past few months, the younger Mr. Laffer pointed out. "We also look at companies with exposure to the dollar and the euro. As the dollar weakened, U.S. exporters did better this last year. So did growthy technology companies."
After building a three-year track record, Laffer Investments has begun marketing to institutions and already raised $200 million from investors, including the $54 billion pension fund of General Electric Co., Fairfield Conn.
For the three-year period ended Oct. 31, the Macro 100 fund returned an annualized 4.01%, compared with its benchmark, the S&P 500, which returned -8.34% for the same period.
