Fort Pitt Capital Group started life as the money management division of a brokerage firm in Pittsburgh. The founding partners, including Charlie Smith, chief investment officer and manager of the firm's Total Return Fund (FPCGX), broke the group off to form Fort Pitt Capital in 1995, launching the fund a few years later.
"The reason we started the fund was because we wanted to be able to provide a vehicle for our clients who didn't have our individual account minimum," Smith told Investment Advisor. "We started it in 2001, and at that point our minimum was $250,000. We wanted to have a way for people who had small IRAs and college funding accounts, that sort of stuff, to be able to invest in our approach to the market."
The fund's minimum investment is $2,500, and as of Jan. 31, it had nearly $50 million in assets.
"The objectives are the same as our other separate accounts, which are to maximize total return after taxes over time," Smith said. "We'll take returns wherever we can get it, whether it be income or appreciation. We will own businesses that are growth businesses in which we would rather management hold on to the capital and not pay dividends, but we also invest in more mature businesses where there is cash being thrown off and we're happy to take a dividend as part of our return. We purposely wrote a very broad prospectus so we'd have the ability to own both growing companies and companies that are a little bit more mature."
So what kind of companies is Smith looking for? Telecom, industrials and aerospace are big parts of the fund's portfolio. In fact, Honeywell and Boeing are the two largest holdings in the fund.
Smith is steering clear of consumer cyclical sectors like housing, autos and big-ticket consumer durables, though. "Just like everyone else, we're following this steady deleveraging on the part of the consumer. We think it's pretty tough for most households to be able to afford big-ticket items without free-flowing credit, and credit is certainly not free-flowing yet."
Although energy hasn't been a big play for the fund in the past, that's starting to change, Smith said.
"We believe in the revolution we're seeing in natural gas production, so we're starting to participate on that side of the energy realm, mostly in gas transportation and equipment for natural gas production. We believe oil is selling at too high a premium. The arbitrage that exists between the energy value in natural gas and oil will shrink, and oil prices will come down and natural gas prices will begin to move up."
Smith noted that there are still some unknown variables when investing in natural gas. "One of the questions we haven't been able to answer yet is whether natural gas will be used here domestically in petrochemical plants or for producing electricity through replacement of coal-fired generation," he said. "We're not sure whether that's going to be the key trend over the next few years or if it's simply going to be exported. Not only is there an arbitrage between natural gas and oil, there's a geographic arbitrage between the U.S. natural gas markets and foreign markets."
