His cool-headedness has been key to its success. As a long-term investor, he looks for resilient companies with staying power and doesn’t chase fads. He tries to avoid firms that lack an enduring competitive advantage, steers clear of those loaded up with too much debt, and scrutinizes their leadership’s integrity and prowess.
The strategy stands out for its sprawling portfolio of 800-plus stocks drawn from across the globe and market-cap spectrum. Once solidly small-cap-focused, it now orients toward mid-caps but distinguishes itself from that category by owning an above-average stake of large caps (34% of assets) and small caps (30%). Its generous helping of European and Japanese firms, which have tended to enhance the strategy’s risk-adjusted returns, also sticks out.
Altogether, foreign stocks regularly soak up more than 35% of the portfolio, typically the highest share in the category. Tillinghast’s partiality for high-quality fare reveals itself through the portfolio’s average returns on equity, which are far higher than the Russell Midcap Value Index’s, and its aggregate debt/capital ratio, which is consistently lower
Focused on the long term.
Manager Joel Tillinghast looks for sturdy, underpriced businesses. Stocks selling for less than $35 or with an earnings yield (12-month earnings per share/share price) at least as high as the Russell 2000 Index’s median are considered to be potential bargains. But his “low-priced” mandate isn’t steered by stinginess. As a long-term investor, Tillinghast wants to own resilient companies with strong profitability, little debt, a defendable market niche, and capable leadership.
He often finds what he thinks are excellent opportunities overseas but reserves serious consideration for foreign markets with democratic institutions and the rule of law.The strategy owned more than 800 stocks at last count, with a large tail of tiny positions. Its huge asset base (more than $41 billion as of April 2021) makes breadth a necessity, as Tillinghast can’t take big positions in the small- and mid-cap names he favors without exceeding ownership limits. In that regard, the fund’s size is a constraint.
Its average market cap is more than triple the Russell 2000 Index’s, but it has remained squarely in mid-cap territory. In recent years, the fund landed in the mid-blend Morningstar Category but most recently moved to mid-value. This doesn’t reflect a change in process but rather where the fund’s holdings have skewed recently
Sprawling but not bland
Despite a sprawling portfolio, the fund has avoided becoming bland or benchmarklike. It has long distinguished itself through a sizable stake in foreign stocks: Its 44% stake as of January 2021 was extraordinary in the mid-cap category, where the average peer invests 2%-4% overseas. Joel Tillinghast works closely with a few analysts who source non-U.S. ideas, including one stationed in Japan, a country that takes up over 9% of assets.
The fund has long favored consumer cyclicals–26% of assets versus the Russell Midcap Value Index’s 13% share–where Tillinghast is better able to find firms with compelling competitive advantages. Its roughly 12% financials stake tends to be below that of relevant benchmarks and peers, driven by Tillinghast’s avoidance of complex banks with leveraged balance sheets. The portfolio usually holds 6% to 10% of its assets in cash, which has acted as a drag on its total returns over the past decade. Comanagers run around 5% of assets, which usually include more than 100 unique names.
Half of that stake is overseen by three sector-based managers, with the remainder split between a quantitatively driven subportfolio and a sleeve featuring global stocks. The crew manages its respective slices with discretion but always under Tillinghast’s philosophical guidance.
(Source: Morning star)
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