Lots of fathers take their kids to work. It makes sense to let them see what Dad does when he leaves the house in the morning, particularly if he’s gone for extended periods. In that sense, Robert Levitt is like many other fathers, but when he takes his kids to work it might mean a trip to Japan and China, as was the case when his 12-year-old son was on spring break this year. It could also be a visit to Dad’s new office in Paris, or possibly something considerably more exotic.
Last summer Levitt took his 15-year-old daughter with him on a trip to Africa that included a stop in Guinea. They arrived at night and through a misunderstanding had no one to meet them nor any place to stay. The other Westerners on their flight were all picked up by someone and soon the Levitts found themselves in a place with no cell phone service and “crowds of people around us telling us in French that they were hungry and wanted money. That was a bit of an interesting experience,” he recalls. “So we had to sort of fend for ourselves, find ourselves some currency, find ourselves a hotel, and make contact with our hosts in what is probably the second-poorest country in the world.”
Levitt, who is founder and chief investment officer of Levitt Capital Management, headquartered in Boca Raton, Florida, talks about the event as if it were just another day at the office. In the same matter-of-fact tones, he describes his 12-person firm as “wealth managers,” which he defines as “someone who designs asset allocations. We also manage the money as well,” he adds. “So, we’re a combination wealth manager/money manager.”
Currently Levitt and his team manage about $400 million for 100 different families using an approach that emphasizes absolute returns. “We tell our clients that our objectives are to earn a low-teens return, annualized over three years, with no calendar [year] losses,” he says. Attempting to deliver a consistent return regardless of market performance, Levitt says, forces him to think differently than most financial advisors. “They don’t believe they can control the risk, therefore they stay fully invested all the time. We believe we can control the risk, so we’re much more active on our investments and our approach.”
When worldwide markets fell in late February, Levitt says his first reaction was to raise cash. “We reduce the level of risk exposure that we have in our clients’ portfolios,” he explains. “Conversely, as our returns increase, we tend to add risk exposure. In that way we’ve been able to achieve a high return in the years when the markets are producing high returns, but protect our clients in years when the market is heading down.”
Because the ability to raise cash at a moment’s notice is a keystone of his investment approach, Levitt eschews alternative investments. “We don’t do any private equity,” he says. “There’s enough money to be made to reach our goals in public equity markets, and we also want the liquidity. Private equity is a different business and I’m not sure our firm is really set up to be good at it.”
Stocks, bonds, commodities, and currencies are all considered when putting portfolios together, Levitt says in explaining his approach. “We look at them globally. We’ll focus also on our clients’ international purchasing power, not just purchasing power defined by the U.S. dollar.”
Not afraid to blaze his own path, Levitt disagrees with the traditional definition of diversification. “I was taught that diversification would be to buy a large-cap growth fund, a large-cap value fund, a small-cap growth fund, and a small-cap value fund, and maybe an international fund.”
He points out that approach works great when everything is going up, as in the 1990s. But when equities declined globally in 2000, it became apparent that diversifying equities with more equities doesn’t provide any kind of protection. “So what we want to do is diversify portfolios into those four different categories [stocks, bonds, commodities, and currencies ] that would give us a whole lot more of what I would call real diversification.”
Right now the portfolios Levitt manages are heavily weighted toward overseas investments. “The majority probably right now is outside the United States, not because we always want to be outside the United States, but the real growth opportunities appear to be in other places than the U.S. The U.S. dollar, particularly this year, has been weakening again, so any exposure we have outside the U.S. benefits from the weaker dollar.”
Looking for Themes
Although Levitt takes an active approach to investing, that doesn’t mean that he and his team are looking for short-term places to park their clients’ money. “We look for themes that will last for years and years and years–things that we expect to occur over a long time,” he explains.
During the first six years of this decade, that meant a big focus on oil and gas and base metals, built on Levitt’s broad theme–the rise of the middle class in developing nations. “Now we’ve moved into a new area which is sort of growth on top of that first theme now that the middle class has been growing, and I’m talking about not just China and India, but many parts of the world,” he says. “I was recently in Nigeria and the same kind of thing is happening there. One of our big themes now is the growing requirement for animal protein, which has led us to many agricultural and agribusiness stocks around the world. There are fertilizer companies, equipment-manufacturing companies, seed provisioning companies that are all contributing to the increased demand for animal protein.”
Also part of Levitt’s agribusiness focus is what he calls “the ethanol issues.” Political pressures in the U.S. have led to an increased demand for corn to produce ethanol, thus pushing up the price and having some unforeseen results. “Mexico is having riots because the price of tortillas is increasing. That’s a direct result of all the corn that’s going into ethanol in the United States,” says Levitt.