This is NIGHTLY BUSINESS REPORT with Bill Griffeth and Sue
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Active or passive. Stocks
are having their best start to a year in decades. And with a bull run ten
years strong, are indexes still the best way to go?
Playing the game. The big money parents shell out on the college prep
And round two. Amazon (NASDAQ:AMZN) got pushback in New York. Well, now
its plans for a new headquarters in Northern Virginia get put to the test
Those stories and more tonight on NIGHTLY BUSINESS REPORT for this Friday,
March the 15th.
And we do bid you a good evening, everybody, and welcome back. Sue is off
Yes, today is March 15th. And if you remember your Shakespeare, that means
it`s the Ides of March. And thanks to the saga of Julius Caesar and his
friend Marcus (NYSE:MCS) Brutus, it is a day if you`re superstitious to
But it turned out that investors didn`t need to worry today as stocks took
off on renewed optimism about the ongoing U.S./China trade negotiations.
Stocks also got a lift from Boeing (NYSE:BA) after a report said that the
company was set to roll out a software fix for its grounded 737 MAX planes
in ten days. But then Boeing (NYSE:BA) did admit its timeline for a fix is
Well, today the Dow rose 138 points. The Nasdaq climbed by 57. The S&P
added 14. And for the week, all three major indexes were solidly higher.
In fact for the Nasdaq and the S&P, this was their best week of the year so
And with the strong surge to start the year, many are again asking, are you
better off with passive index investing?
Bob Pisani has the story.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Call it the triumph of
indexing. Fund managers continue to trail their benchmarks. Active
managers who claim they would do better during periods of heightened
volatility, they`re going to have to find another argument. This week, S&P
Dow Jones indices released its annual report on how actively managed funds
performed against the broader market. The conclusion, active managers
continued to show dismal performance against their passive index
Roughly 65 percent of large cap funds lagged the S&P 500 last year. That
now marks the ninth straight year that`s happened. 2018 stood out because
of the volatility in the fourth quarter. But even with all those wild
swings, active managers did not outperform. The study will no doubt
bolster the claims of any financial advisers who say that investing in low
cost passive funds remain the soundest long-term investment strategy.
And it`s not just a one-year phenomenon. This study has been going on for
16 years. And the long-term results only strengthen the claim for index
Indeed, while a fund manager may outperform for a year or two, the
outperformance does not last. After ten years, for example, almost 90
percent of large cap funds underperform the S&P 500. After 15 years, more
than 50 percent of trailing the index.
And longer term, it didn`t matter what asset class you`re looking at. The
numbers were not much better in other categories like small cap stocks or
fixed income. Eighty percent or more of active managers across all
categories underperformed their respective benchmarks over a ten-year
Looking at managers` overall record last year versus the broader S&P 1,500
composite, 2018 was the fourth worst year for stock managers since 2001.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.
GRIFFETH: And joining us tonight to make the case for active investing is
an actively managed fund manager. Sandy Villere is back with us now. He
manage the Villere Balanced Fund.
Sandy, good to see you again as always.
SANDY VILLERE, VILLERE BALANCED FUND PORTFOLIO MANAGER: You too. Thanks,
GRIFFETH: Better performance on lower fees. You have to admit, the
advantage still goes with the passive index funds. What say you?
VILLERE: Sure. I mean, certainly on the fee perspective. But if you look
at a lot of the actively managed funds, a lot of them are sort of closet
indexers so they really have a low kind of active share where they really
don`t deviate much from the benchmark, whereas what we try to do at Villere
and Company is to really concentrate our positions on about 20 to 25 of our
very best ideas and try to increase that active share so we do deviate from
the benchmark. That`s sort — that`s sort of our take on it.
GRIFFETH: And you bring up an interesting point. You have to admit the
structure of the market has changed dramatically over the last 10 or 15
years where you have this proliferation of ETFs, the exchange traded funds.
Many more index funds. The rise of algorithmic investing, which tends to
move indexes in tandem at all times.
I mean, it just plays itself out where you want to go with index investing
at that point, right?
VILLERE: Yes. And essentially when you look back at December of last
year, which is really the worst month since the Great Depression, because I
think of all the ETFs, et cetera, you know, you had pretty much the worst –
– the correlations went to one. Everything moved exactly in tandem, which
was a little frightening.
GRIFFETH: However, I have a theory, let`s see what you think. As long as
the market is in a bull market, yes, index investing will be the advantage.
But when you get a bear market inevitably or a downdraft of some kind,
that`s when you active managers can outshine. What do you think?
VILLERE: Yes. So when you look at the S&P 500, it is market cap weighted,
so the top, say, you know, top ten positions are ones that have been very
successful. So you look at the FAANGs, the Facebook (NASDAQ:FB), Apple
(NASDAQ:AAPL), Amazon (NASDAQ:AMZN), you know, call it Google (NASDAQ:GOOG)
and I`d add Microsoft (NASDAQ:MSFT) to that list, are about 14.5 percent of
the S&P 500.
So, when someone buys that passive fund, you know, hopefully, they realize
they`re putting 14.5 cents of every dollar into those five companies. So,
you know, it`s all fun when things go up and they continue to do well. But
if you get some issues like happened with Facebook (NASDAQ:FB) today where
you get their chief product officer that`s stepping down or other things
from an antitrust standpoint, it could be tough sledding for some of those
GRIFFETH: Indeed. Sandy, as always, again, thank you for joining us
VILLERE: Thank you, Bill.
GRIFFETH: Sandy Villere with the Villere Balanced Fund.
By the way, that hope that I mentioned earlier about trade was sparked by a
report that China`s vice premier spoke on the phone today with Treasury
Secretary Mnuchin and with Trade Representative Lighthizer. There was also
a perceived positive step at the close of the two-week-long National
People`s Congress in China.
Eunice Yoon has more details on that from Beijing for us.
EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: The main event today
was the passage of the new foreign investment law, which could be a signal
that Beijing is willing to make compromises on its trade deal with
Washington. In a highly unusual move, the draft law was revised at the
very last minute to include language that addresses a long-standing issue
facing American companies on IP theft. One of the big complaints is if
companies want to introduce a new product or open a factory here, they need
to go through a licensing process with a government-led board and give a
lot of proprietary information.
This has been seen as a way to steal secrets and pass them to Chinese
competition. The new law is meant to address those concerns, barring
officials from divulging trade secrets and threatening them with criminal
penalties. The American business community here sees this as a positive
step, though there is a question of how it will be implemented.
At his annual press briefing, Premier Li Keqiang said he hoped the U.S. and
China would produce a good trade deal. He also became the highest ranking
official to attempt to ease fears that Beijing is using technology made by
firms like Huawei to spy on other countries.
He said: Let me tell you explicitly that this is not consistent with
Chinese law. This is not how China behaves. We did not do that and will
not do that in the future.
On the economy, the premier outlined measures to stabilize growth. The
most important tool, he said, big reductions to taxes and other fees. He
said previously announced value added tax cuts would kick in in April.
Social insurance cuts could start in May. And he repeated that China
wouldn`t engage in a flood-like stimulus.
For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.
GRIFETH: It has taken down celebrities and CEOs and it has already spawned
more than half a trillion dollars worth of lawsuits. In the process, this
week`s college admission scandal has shined a light on the big business of
getting into college.
Tonight, our Robert Frank takes a look at one part of that, the advisers.
ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT: The college cheating
scandal has cast a spotlight on one of the fastest growing industries in
education, college consultants. There are now about 8,000 private
educational consultants in the U.S., up from just 2,500 five years ago.
Revenues are over $400 million a year. If you add in test prep and tutors,
the numbers are estimated to be in the billions.
Now, college consultants say that William “Rick” Singer, the man at the
center of that cheating ring, was just a bad actor in an otherwise
important industry that helps guide students in the college process.
Demand is soaring for kids of younger and younger ages.
CHRISTOPHER RIM, COMMAND EDUCATION CEO: Every other day, I have a second
grader or third grader`s parents, family, calling me, asking what can we do
as a second grader to help in the college admissions process. I said
there`s nothing we can do. The only thing for you to do is that your child
do what he wants to do. If he`s interested in art, ceramics, painting,
music, let their child explore those passions or talents and then take it
FRANK: Maybe advisers charge around $15,000 a year, with others charging
by the hour, some over $1,000 per hour. The most expensive programs can
run to the hundreds of thousands of dollars over multiple years.
Now, some estimate college consultants are used by one-quarter of the
students at private colleges. The advisers say their focus is helping kids
figure out what they want in a school, steering them to the best fit and
giving them a road map to get there. Yet many parents, school officials
and others say the college prep industry preys on the anxieties of wealthy
parents, and helps widen the gap between the haves and the have-nots in
RIM: We offer scholarships and pro bono services for students who can`t
afford it, because we`re not in this industry to widen the opportunity gap.
Unfortunately, this is the game. It`s an unfair game. And we want to make
sure that all students, regardless of their family income level, have a
fair chance, as much as that could be.
FRANK: The bull market for consultants is expected to continue, because
the acceptance rates keep shrinking and the criteria for getting in remains
so opaque. The acceptance rate for Stanford was 20 percent in 1994. Now,
it`s under 5 percent. With odds like those, it`s no wonder that families
are seeking any help they can get.
For NIGHTLY BUSINESS REPORT, I`m Robert Frank.
GRIFFETH: You know, right now, it may be easier to get a job than to land
a spot at a prestigious university. In fact, the Department of Labor said
today there are 7.5 million job openings across the country. That is the
third highest level on record. But as we`ve heard, the problem has been
that many employers have not been able to find enough skilled workers to
fill those jobs.
Joining us now with how you can land one of those jobs is our senior
personal finance correspondent, Sharon Epperson.
What are those skills that we keep hearing about that people are in such
demand right now?
SHARON EPPERSON, NIGHTLY BUSINESS REPORT SENIOR PERSONAL FINANCE
CORRESPONDENT: Well, a lot of people think they`re hard skills, that you
need to know the newest technology. And having technical skills is very
important, but it`s also important to have soft skills.
EPPERSON: Career Builder did a survey and asked hiring managers how
important are the soft skills. They said 80 percent of the hiring managers
want these skills more than hard skills. Be a team player, be able to be
able to work with many people on a team, pay attention to detail and focus
on customer service, not just outside of your company but within other
departments. Make sure you`re willing to work with others.
GRIFFETH: Are there areas that are more in demand than others right now?
EPPERSON: Skilled labor is where a lot of the jobs are, about 25 percent
according to Career Builder. But another big area is data analysis, also
digital marketing and cyber security.
And what`s interesting is, these jobs are in many different industries.
You may find cybersecurity experts in health care or financial services,
not just technology companies. So, what`s interesting is to focus on the
skills and then go into various areas and those skills become transferable
to many different jobs.
GRIFFETH: Here`s the question, how do you get those skills? Where do you
EPPERSON: So, it`s important to try to volunteer if you can for a small
business, for a nonprofit organization. Getting some of those skills, take
When you get that experience, make sure you include that on your resume.
Volunteer experience is still experience if it`s relevant to what that job
is looking for. And also make sure that the words that are needed in terms
of the type of technology that you`re learning, include those words on the
And the most important part is stay positive, be confident. Come into the
interview, present yourself in the cover letter and in your resume as if
you`ve got this, you`re ready for the job, even if you`re learning on the
way. Don`t let them know that, you`re going to be ready.
GRIFFETH: I heard somebody say this week, and this is a bit of an
exaggeration. But any more you don`t need a degree, you just need job
EPPERSON: You definitely need job skills. So, while you`re getting your
education, those internships are really critical. And volunteering again,
you know, we want to get paid for our work but if you need the skills, then
you should just get that experience.
GRIFFETH: Sharon Epperson, thank you as always. Have a good weekend.
EPPERSON: My pleasure.
GRIFFETH: Have a good weekend.
Coming up, this week`s market monitor says believe it or not, there are
ways Washington can help your portfolio. He`ll tell us how.
GRIFFETH: Tesla has finally taken the wraps off its highly anticipated
next vehicle, the Model Y. This small SUV won`t be out until late next
year, but already questions are swirling about whether this will be a huge
hit or not for Tesla.
Phil LeBeau has more for us tonight from Phoenix.
UNIDENTIFIED MALE: The Model Y.
PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s the small SUV
driving big expectations. Tesla`s Model Y, starting at $39,000, could
eventually be the automaker`s best-selling vehicle ever, especially with
the world`s growing appetite for smaller utility vehicles.
ELON MUSK, TESLA CEO: I`m confident that it will be of any midsize SUV, it
will be the one you want.
LEBEAU: The new SUV will be built at Tesla`s plant in California, and at a
new plant under construction in China. Given the challenges Tesla faced
ramping up production of its small sedan, the Model 3, some analysts are
wondering if the Model Y will wind up having similar problems. By the time
the Model Y comes out, there will already be a number of other electric
small SUVs adding competition as Tesla tries to push sales from a quarter
million it did last year to the expectation of well over a half million
vehicles next year.
GARRETT NELSON, CFRA RESEARCH: We think Tesla is going to be facing a lot
more electric vehicle competition from the likes of Audi, Jaguar, BMW,
Mercedes and others, starting with the 2021 model year.
LEBEAU: And that`s not the only challenge facing Tesla CEO Elon Musk.
He`s been stripped of his chairmanship by the SEC and is still battling the
regulatory agency over how he uses social media to talk about his company.
MUSK: Like 2018 is probably felt like aging five years in one. Honestly,
it was really intense.
LEBEAU: Tesla`s biggest difficulty right now is managing its cash flow and
potentially turning a profit, while trying to sell more lower priced
vehicles like the Model 3 and eventually the Model Y, which is scheduled to
go on sale late next year.
Phil LeBeau, NIGHTLY BUSINESS REPORT, Phoenix, Arizona.
GRIFFETH: Apple (NASDAQ:AAPL) loses a round against Qualcomm
(NASDAQ:QCOM), and that`s where we begin tonight`s “Market Focus”.
A San Diego jury today found that Apple (NASDAQ:AAPL) did indeed infringe
on three patents held by mobile phone chip supplier Qualcomm (NASDAQ:QCOM).
As a result, Apple (NASDAQ:AAPL) must pay $31 million for the infringement
and this was only one of a series of patent lawsuits between these two
companies going on around the world right now. Shares of both were higher.
Apple (NASDAQ:AAPL) was up 1 percent to $186.12. Qualcomm (NASDAQ:QCOM)
gained 2 percent to $56.60.
Elsewhere, in an effort to cut costs, Ford said today it is cutting 5,000
jobs in Germany and an undetermined number in the U.K. It`s all part of a
larger $11 billion plan to restructure the automaker`s operations
worldwide. Ford was up two pennies today to $8.43.
Shares of Ulta Beauty hit a 52-week high today after its quarterly results
topped estimates after the bell last night. The cosmetics retailer same-
store sales rose nearly 10 percent on an increase in customer traffic. The
CEO cited the popularity of Kylie Jenner`s Kylie Cosmetics. Ulta gained
better than 8 percent to $338.41.
Newell Brands CEO Michael Polk is going to retire at the end of the second
quarter after serving in that role since 2011. During Polk`s tenure, the
household goods company had been accused by activist investor Starboard
Value and Carl Icahn of strategic missteps and the company agreed to give
them board seats and accelerate a turnaround plan. Newell was up a
fraction today to $15.56.
Time now for this week`s market monitor. And our guest has names of
companies that he says could benefit from policy and regulation changes in
Washington. This is his first time on the program.
We welcome Ben Phillips. He`s chief investment officer at EventShares.
Ben, good to see you. Thank you for joining us tonight.
BEN PHILLIPS, CHIEF INVESTMENT OFFICER, EVENTSHARES: Thank you, Bill.
GRIFFETH: The first one has to do with the possibility of any
infrastructure plans that may come out of Washington, and you`ve chosen a
company that might benefit from that, right?
PHILLIPS: That`s right, Granite Construction (NYSE:GVA), ticker is GVA.
We like the management team. Sixty percent of their revenue comes from
infrastructure spending for the most part. Usually, it`s led by the
And just one fun fact for you. Twenty-nine states have increased gas taxes
since 2013 in order to pay for infrastructure. So, this is one we think is
going to will be a key beneficiary since it`s a nonelection year and that`s
when states hiking gas taxes typically.
GRIFFETH: Last year, the Supreme Court allowed states to collect sales tax
from e-commerce companies even if they`re not based in that state. And
you`ve got a company that came public last year and it`s been on a tear
this year. But you think it could benefit from this change in rules.
PHILLIPS: Yes, it`s been on a tear, but they have one of the best
technologies out there. It`s Avalara, AVLR is the ticker. And it`s got
plans for the next thing that we`re going to talk about too, which is 5G.
But Avalara, they are one of the few with this really high-quality sales
tax compliance software package. And they`re able to use it across the
nation. It`s really been empowered by broadband internet and 5G telecom
will be the next big empowerment for this company.
GRIFFETH: Let`s talk about 5G. It`s expected to roll out later this year
and you`ve chosen an old guard name really in the technology world. But
again, this is another company that`s been doing very well so far in 2019.
That`s the end.
PHILLIPS: That`s right. So, this is Ciena, ticker CIEN. This is like a
mini Nokia (NYSE:NOK)/Ericsson, but they`re U.S.-based, U.S. manufacturer
of this equipment. But the thing about 5G telecom, the next generation of
telecom infrastructure rolling out globally is it`s much more dense. It
requires a much higher density so you need these nodes closer together
versus the typically 4G and 3G cell towers right now, pretty space out.
So, the density requires a higher equipment CapEx, more upgrading of
equipment and more spending. We think Ciena is direct beneficiary of that.
GRIFFETH: All right, we will see what happens.
Ben, thanks for joining us. See you soon. Ben Phillips with EventShares –
PHILLIPS: Thank you.
GRIFFETH: — joining us as our market monitor tonight.
And coming up, Amazon (NASDAQ:AMZN) faces activists in Arlington.
(BEGIN VIDEO CLIP)
SCOTT COHN, NIGHTLY BUSINESS REPORT CORRESPONDENT: A key vote this weekend
could decide whether Amazon`s HQ2 in Virginia goes the way of HQ2 in New
York. I`m Scott Cohn. We`ll have the story coming up on NIGHTLY BUSINESS
(END VIDEO CLIP)
GRIFFETH: Last night, we told you about Amazon`s real estate impact in
Arlington, Virginia, with homes there selling at a brisk pace for rich
prices. Well, now a key vote this weekend in Arlington could decide if
Amazon`s HQ2 project there does go forward or if it gets the New York City
treatment. Amazon (NASDAQ:AMZN) is promising to create some 25,000 jobs in
the Crystal City area there. Some activists want to do what New York City
did and send the company packing.
Scott Cohn is in Crystal City for us tonight.
COHN: There`s no question Amazon (NASDAQ:AMZN) would transform Crystal
City, but there are lots of questions about how.
UNIDENTIFIED MALE: As long as they`re doing what they can to make sure
traffic doesn`t become a major issue, we think it`s a good opportunity for
UNIDENTIFIED MALE: What I`m concerned about is what the workers are going
to get as far as a living wage.
UNIDENTIFIED FEMALE: I`m sure that`s going to make prices skyrocket and
they will make it hard for people to potentially buy in the future.
COHN: A coalition of community groups has been whipping up the frenzy,
energized by activist success in driving the project out of New York. Now
they`re targeting a Saturday vote by the Arlington County Board on $23
million in new incentives for Amazon (NASDAQ:AMZN).
ANGELA PEOPLES, FOR US, NOT AMAZON COALITION: We absolutely think that the
county should vote down these incentives and put that money towards
investing in the community.
COHN: Proponents say the incentives are investing in the community, on top
of $750 million approved by the state.
County board chairman Christian Dorsey is resisting calls to delay
CHRISTIAN DORSEY, ARLINGTON COUNTY BOARD PRESIDENT: There is no purpose to
the delay. When you have no purpose to something, doing it to me is a
breach of the public trust.
COHN: The county incentives are tied to the office space Amazon
(NASDAQ:AMZN) occupies, a boon to developer JBG Smith, which owns most of
the property in Crystal City. And there are other perks for Amazon
(NASDAQ:AMZN), including a provision giving them advance notice of public
records requests, all of which the county defends.
DORSEY: This is the way economic development has gone in this country for
the past decade.
COHN: Twenty-three million dollars in incentives is the equivalent of one
hour`s revenue for Amazon (NASDAQ:AMZN). So, even if the county rejects
the package, it`s not clear it would make any difference and Amazon
(NASDAQ:AMZN) isn`t saying. But the activists vowed to be there for every
zoning requests and building permit to come, making HQ2 not nearly as easy
as Amazon (NASDAQ:AMZN) apparently once thought.
For NIGHTLY BUSINESS REPORT, Scott Cohn, Arlington, Virginia.
GRIFFETH: And before we go, a final look at the day and the week on Wall
Street. Both strong. The Dow rose 138 points. Nasdaq, technology
continues to be the leader this week. It climbed by 57 points. And the
S&P added 14.
Now, for the week, all three of those major averages were solidly higher.
And for the Nasdaq and the S&P, this was their best week of the year so far
That is it for NIGHTLY BUSINESS REPORT for tonight. Thank you so much for
watching as always. We want to remind you that this is the time of year
your public television station seeks your support and we do thank you for
that support. Have a great weekend, everybody. We`ll see you on Monday.
About NBR“Nightly Business Report produced by CNBC” (NBR) is an award-winning and highly-respected nightly business news program that airs on public television. Television’s longest-running evening business news broadcast, “NBR” features in-depth coverage and analysis of the biggest financial news stories of the day and access to some of the world’s top business leaders and policy makers.
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