Category: Funds

A fund refers to capital belonging to numerous investors used to collectively purchase securities while each investor retains ownership and control of his own shares. An investment fund provides a broader selection of investment opportunities, greater management expertise, and lower investment fees than investors might be able to obtain on their own. Types of investment funds include mutual funds, exchange-traded funds, money market funds, and hedge funds.

Categories
Funds Funds

Invesco Main Street Mid Cap Y OPMYX

Anello had been a lead manager of this fund since 2012 and had worked with Main Street team founder Mani Govil since 2006, but the fund had been a mediocre performer under his watch, so his departure was not really a shock. Now the fund’s sole lead manager is Belinda Cavazos, who was hired in February 2020 to manage this fund and Invesco Rising Dividends OARDX. She previously spent three years at Boston Trust managing small and mid-cap funds with some success. But this fund is much larger than any of her previous charges, and turning it around will be no easy task.

This fund is a mid-cap counterpart to Invesco Main Street MSIGX, which tries to identify profitable, well-run companies trading at reasonable valuations. Cavazos has not made any major changes to the process, but she has tried to put her own stamp on the fund, especially since Anello left. She reduced the portfolio’s exposure to some interest-rate-sensitive sectors, notably real estate and utilities, and added to some cyclical names such as Vulcan Materials VMC and homebuilder

D.R. Horton DHI. She also reduced the overweighting in energy that the fund typically had under Anello and sold some large-cap names that didn’t really fit with the fund’s mid-cap mandate. The effect has been to make the fund less reliant on sector bets and more driven by stock-picking. So far, the results haven’t been great. In 2020, the fund trailed about two thirds of its midcap blend Morningstar Category peers, similar to its performance over the past three, five, and 10 years. Results were similarly disappointing in the first five months of 2021. It is hard to come to any firm conclusions based on such a short time period, but Cavazos will definitely need to achieve better results than this before concluding that the fund is on the right track.

This fund’s strategy is straightforward in most respects. It is similar to the approach used by Invesco Main Street MSIGX, but less tested. It earns an Average Process rating. Lead manager Belinda Cavazos and her six co-managers employ a version of the strategy developed over the years by Main Street team leader Mani Govil. They seek companies with strong management teams and a fundamental catalyst for future value creation over the next two to five years, such as pricing power, market share gains, or improving profitability.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Funds Funds

Devon Alpha Fund

This is the fourth portfolio manager change on this strategy in four years. In early

2019, Devon announced it was changing the portfolio manager to Mark Brown from Nick Dravitzki. Prior to taking the portfolio manager role, Brown had been the chief investment officer at Devon. Dravitzki had been the portfolio manager on this strategy since 2017 following previous portfolio manager Robertson’s ascension to the key business management role. This level of portfolio manager change on a strategy that allows significant flexibility for the key decision-maker rarely leads to good outcomes in the short to medium term, even with an experienced team.

The investment process seeks to identify companies in the NZX 50 and S&P/ASX 200 indexes that have the ability to generate strong returns on invested capital and achieve good cash flow expansion or have unappreciated catalysts for revaluation. The strategy allows for a portfolio of just 10-15 stocks, so the fund carries significant stock- and sector-specific risk, which may result in greater volatility than more-traditional strategies. In addition, the portfolio manager has a high level of discretion and can allocate 0-100% to New Zealand stocks, 0-100% to Australian stocks, or 0-100% to cash. Historically, cash levels have often been in the 20%-30% range but have been lower since mid-2020. The portfolio manager also has the flexibility to short-sell stocks (though we’ve rarely seen it used) and invests outside Australasia.

Since inception, the strategy’s returns have been largely lacklustre, which is not entirely unexpected given the difficulty in getting cash levels right and the portfolio manager changes.

Devon Alpha has some interesting characteristics, but the numerous portfolio manager changes constrain our enthusiasm.

Devon seeks to identify Australasian companies with the ability to produce strong returns on invested capital. Devon generates investment ideas through its fundamental research process and draws on its members’ extensive experience. On-the-ground research is an important part of the process; the team will not only visit management of companies in the portfolio and potential holdings, but also competitors, suppliers, and customers. Discounted cash flow is the most important factor in the valuation decision, ensuring the team avoids overpaying for companies. The investment decision also considers the strength of the business model, the relative attractiveness of the industry, quality of management, and the company’s financial health. These factors are assigned weightings that the portfolio manager uses in his portfolio construction process.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Funds Funds

Devon Dividend Yield Fund

However, Nick Dravitzki, who had been portfolio manager on this strategy since it was launched in 2012, resigned in early June 2020. Devon’s experienced chief investment officer, Mark Brown is now portfolio manager here. He is assisted by the investment team, which includes managing director Slade Robertson, three portfolio managers, and two senior equities analysts.

The investment team is tight-knit and possesses valuable experience, but in recent years the good quality research and portfolio construction we had come to expect from Devon has marginally declined relative to peers. In addition, a change of portfolio manager, in the short term, can be unsettling for an investment team and strategy. However, Robertson has restructured and reinvigorated the team by hiring two additional analysts and increasing his mentoring of the investment committee. The investment process is straightforward, with an emphasis on fundamental bottom up research. The team invests in companies based on their gross yield to a New Zealand investor and the sustainability of that yield. The 20-25 stock portfolios is high-conviction and therefore carries significant stock- and sector-specific risk, which may result in greater volatility than peers.

Utilities, listed property, and financial services companies typically take up 45%-50% of FUM.

However, there are no restrictions on the amount invested in Australian and New Zealand companies, providing the portfolio manager with significant flexibility to allocate capital where he sees opportunities. Since inception, the strategy has experienced mixed performance. The process worked well up until late 2016, but since early 2017 the strategy has struggled against the index and equity region Australasia Morningstar Category peers. The process behind Devon Equity Income is reasonable, but our conviction is stronger with peers at this time.

Devon Dividend Yield aims to provide investors with a stream of income by constructing a concentrated portfolio of New Zealand and Australian companies, with a 2% blended yield improvement compared with the market. Devon screens the S&P/NZX 50 and S&P/ASX 200 indexes and ranks stocks by their gross dividend yields to a New Zealand investor. Valuation of top-ranked stocks is determined using a discounted cash flow methodology. Devon will go the extra mile to obtain an understanding of the intrinsic value of a business. Fortunately, a healthy travel budget accommodates this, whether for company visitation or investment conferences.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.               

Categories
Funds Funds

Devon Trans-Tasman Fund

Willis and Robertson are supported by the Devon investment team of Chris Glaskin (portfolio manager), Mark Brown (portfolio manager/ chief investment officer), Victoria Harris (sustainability portfolio manager), and two investment analysts. The investment team is tight-knit and possesses valuable experience and knowledge. In addition, Willis undertakes considerable company visits and management meetings in New Zealand and Australia. However, during the past few years, there have been some missteps in stock selection and portfolio construction that have prevented the fund from outperforming its index and peers. Issues have included limited exposure to some of the largest and best-performing New Zealand stocks. We believe the good quality research and portfolio construction we had come to expect from Devon had declined relative to peers. However, during 2020, the highly experienced Slade Robertson restructured and reinvigorated the team by hiring a sustainability portfolio manager and two additional analysts; he also became co-portfolio manager of this strategy. Robertson had been portfolio manager of the fund up until 2015.

The process is straightforward and repeatable, with an emphasis on fundamental bottom-up research. The team searches for companies with sustainable earnings, high return on capital, good cash conversion, and low capital expenditure. A benchmark-agnostic high-conviction approach is adopted when constructing the growth-orientated portfolio of 25-35 stocks, which often contains mid- to small-cap companies. Despite recent solid performance, on a trailing returns basis, the strategy has fallen behind equity region Australasia Morningstar Category peers the category index (50% S&P/NZX 50 Index and 50% S&P/ASX 200 Index) over the trailing three and five years to 30 April 2021.

Devon seeks to identify Australasian companies with the ability to produce strong returns on invested capital. Devon generates investment ideas through its fundamental research process and draws on its team members’ extensive experience. The team travels extensively to obtain an understanding of businesses and to determine the intrinsic value of companies. A healthy travel budget accommodates this, whether it is for company visitation, investment conferences, or idea generation.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Funds Funds

BlackRock Global Funds – Asian Growth Leaders Fund A2 USD

The strategy is comanaged by Emily Dong and Stephen Andrews. Dong has been on the roster since the strategy’s 2012 inception alongside previous comanager Andrew Swan, who unexpectedly left the firm and was replaced by Andrews in April 2020. Andrews has 23 years of industry experience, albeit mostly on the sell-side prior to joining BlackRock in 2017. His first portfolio management stint came in April 2018 and his limited portfolio management experience was apparent during our meetings. Dong, who has 18 years of investment experience and 11 years of firm tenure, brings some continuity amid the team change. That said, while she has contributed to the strategy’s solid track record in the past, the views she provided during our meetings have tended to be undifferentiated and we have yet to build conviction on the collaboration between the comanagers.

Our confidence is further dampened by the ongoing instability within the 36-member investment team, which has notably lost several senior portfolio managers and country experts in recent years. The strategy continues to follow a style agnostic approach that combines top-down and bottom-up research, with the aim of outperforming in different market environments. After determining which style factors or sectors to rotate into, the comanagers leverage the fundamental analysts to build a concentrated 30- to 60-stock portfolio.

This is an index-agnostic and high-conviction offering compared with the team’s core Asian equity mandate BGF Asian Dragon, and management has used the flexibility to make drastic short-term position changes to reflect the team’s top ideas. While the approach is reasonable, it depends much on the managers’ intuition and experience in navigating the market, and we are sceptical of the comanagers’ ability to execute the strategy and add value on a consistent basis. Overall, the strategy does not stand out as an attractive option for investors looking for Asia ex Japan equity exposure.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Funds Funds

Candriam Equities L Biotechnology Class L USD Cap

Rudi van den Eynde is among the most seasoned investors in the biotechnology sector. His track record on Candriam Equities L Biotechnology spans over more than two decades. He navigated the fund through periods where biotechnology stocks were unpopular and when they became red-hot. His experience in assessing innovations and market potential is invaluable to the fund.

He receives support from a dedicated and growing cast. Comanager Servaas Michielssens started as analyst in 2016 and assumed portfolio manager responsibilities in 2019. Further support comes from three recently hired analysts and a diverse group of external advisors and industry experts.

While we welcome the additional resources given the complexity and growing number of listed biotechnology companies, we also note that team dynamics changed and the effectiveness of the new members is unproven. Keyperson risk remains high in our view, while their workload is considerable–managing two other strategies that have some overlap. The process rests on a solid foundation of thorough research of clinical data. It is well structured and effectively balances the significant opportunities offered by the industry with the binary outcomes of many biotech ventures and the associated volatility of their stock price.

The managers run the fund with a cautious mindset, diversifying the portfolio over a range of disease types, market caps, and clinical trial stages. Although liquidity is not a concern, the substantial rise in assets for this fund and the oncology fund, which have 36 holdings in common per April 2021, needs to be monitored. Candriam would consider soft-closing the biotechnology fund when combined assets reach USD 5 billion, which leaves about 20% of spare capacity.

Despite uninspiring performance over the recent 18-month period, the strategy’s track record remains compelling over longer horizons. The fund’s R USD Cap share class has beaten both the category average and Nasdaq Biotechnology Index over various periods.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.               

Categories
Funds Funds

Federated Hermes MDT Small Cap Growth R6

The team is experienced at the top. Dan Mahr joined MDT in 2001 and became lead manager of this fund in 2008. He is responsible for the model and research and draws on seven managers/analysts. Frederick Konopka also became a manager in 2008 and handles portfolio construction and trading for the team.

The fund’s approach is differentiated. MDT looks to group companies into different baskets producing various streams of alpha potential using valuation, growth, momentum, and quality indicators. By using classification and regression tree analysis, the team can test thousands of potential combinations of factors based on 30-plus years of U.S. stock data to find the best mixtures of alpha using a three-month investment horizon. For example, the model could forecast positive alpha from low price and low debt, but also high price and stable business, which a standard linear regression model can’t do.

Still, such a short investment horizon can be difficult to implement. It leads to annual portfolio turnover that can be lofty and varies greatly. Over the past five years, turnover ranged from 188% to 227%, well above the 59%-66% range for the typical small-growth Morningstar Category peer. The portfolio’s holdings have varied from 150 to 250, suggesting some opportunities may be too illiquid and costly to pursue unless they’re spread out across more holdings.

Since Mahr became lead manager in August 2008, the Institutional shares’ 11.9% annualized return through April 2021 lagged the small growth category’s 12.2% gain and the Russell 2000 Growth Index’s 12.2% rise. The fund has performed better since the team’s 2013 process switch to multiple decision trees, but the fund’s high volatility has kept its risk-adjusted results in line with the index. Investors should consider other options.

The fund’s absolute and risk-adjusted returns lag the Russell 2000 Growth Index during lead manager Dan Mahr’s tenure. Since Mahr took over in August 2008, the Institutional shares’ 11.9% annualized return through April 2021 trailed the small-growth category’s 12.2% gain and the Russell 2000 Growth Index’s 12.2% rise. It has done so with more volatility than the benchmark, resulting in subpar risk adjusted performance measures, like the Sharpe ratio. Most of the fund’s underperformance has come during market turbulence. Mahr’s Aug. 31, 2008,start date means he took over amid the credit crisis, and the fund barely edged the benchmark through that period’s March 9, 2009, bottom. The fund lagged the bogy’s ensuing trough-to-peak (April 23, 2010) performance by 26.6 percentage points, annualized. The fund has performed better since the team’s 2013 switch to using multiple decision trees for regression analysis, though. Its 16.8% annualized gain through April 2021 bested the index’s 16.1%. However, the fund’s elevated volatility has caused the fund to struggle in market pullbacks, such as late 2018’s correction. It also underperformed in 2020’s first-quarter coronavirus driven pullback. That volatility has helped it advance in market rallies and has captured 102% of the market gains during that span.

SOURCE:MORNINGSTAR

Disclaimer

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Funds Funds

MFS Intl Diversification R6

As expected, this fund of funds added MFS International Large Cap Value MKVHX as the sixth fund on its roster in 2020 after holding the same five funds during for its first 16 years. MFS International Large Cap Value uses a value process, while the five original funds (MFS Research International MRSKX, MFS International Intrinsic Value MINJX, MFS International Growth MGRDX, MFS International New Discovery MIDLX, and MFS Emerging Markets Equity MEMJX) use blend or growth disciplines. The 2020 expansion makes this already diversified fund even more so.

The processes of the six underlying funds are sound and complementary, and provide this fund with an edge. Steven Gorham and David Shindler of MFS International Large Cap Value look for strong fundamentals and attractive valuations as Gorham previously did with other managers at MFS Value MEIKX. The team at MFS International Intrinsic Value seeks sustainable competitive edges and other strengths. The teams at MFS International Growth, MFS International New Discovery, and MFS Emerging Markets–which previously or currently have comanagers in common–all use the same valuation-conscious quality growth discipline. The team at MFS Research International seeks fundamental strengths and reasonable valuations. And though MFS International Large Cap Value doesn’t have an Analyst Rating and thus no Process Pillar rating, MFS Value MEIKX has a Process score of High, while four of the five of this fund’s five long-time funds have Process ratings of Above Average.

Gorham and Shindler are seasoned and skilled. Gorham has a solid record as comanager on a value-oriented global fund as well as strong record a comanager at MFS Value, and Shindler has succeeded as a comanager on a U.K. large-cap strategy. The teams of the other five funds are also strong.

The Fund’s Approach

MFS International Large Cap Value MKVHX was added as the sixth strategy on this fund of funds’ roster as expected in mid-2020, and its weight was raised to its target allocation of 15% during the second half of the year. The weights in MFS International Intrinsic Value MINJX and MFS International Growth MGRDX were lowered to 15% each from 22.5% each. The weight to MFS International New Discovery MIDLX remained at 10%. The weight in MFS Research International MRSKX was lowered to 27.5% from 30.0% during the second half of 2020, while the allocation to MFS Emerging Markets Equity MEMJX was increased to 17.5% from 15%. Steven Gorham and David Shindler of MFS International Large Cap Value look for strong fundamentals as well as attractive valuations (as Gorham previously did successfully with other comanagers at MFS Value MEIKX). The team at MFS International Intrinsic Value seeks sustainable competitive edges and other strengths.

The teams at MFS International Growth, MFS International New Discovery, and MFS Emerging Markets all use the same valuation-conscious quality growth discipline. And the team at MFS Research International looks for fundamental strengths and reasonable valuations. Adding a sixth fund made sense for diversification reasons. The six underlying processes are sound, complementary, and proven, supporting an Above Average Process rating.

The Fund’s Portfolio

This fund of funds added a foreign large-value fund to its roster in mid-2020 to complement the one foreign large-blend offering, two foreign large-growth funds, one foreign small/mid- growth offering, and one diversified emerging market fund it has owned since its 2004 inception. With this addition to its roster, its already quite wide-ranging portfolio has become even more so. It owned 597 stocks and devoted 16% of its assets to its top 10 as of April 2021 versus 536 and 18% as of May 2020. (The typical actively run foreign large-blend fund owns around 80 stocks and devotes roughly 25% of its assets to its top 10.) This fund is also even more diversified by style, sector, and country now. But all six of the underlying funds use distinctive strategies and allow their stock selection to lead to moderate sector and country overweighting’s, so this funds portfolio isn’t so broad that it’s completely bland. Indeed, several of the underlying funds have found a significant number of attractive investments in the consumer defensive sector, so this fund has a 14.1% stake there versus 9.5% for its average peer and 8.6% for the MSCI All Country World Index ex USA category benchmark. It also has a fairly modest stake in the consumer cyclicals sector. This fund has an average market cap of $38.7 billion versus $54.4 billion for its average peer and $46.9 billion for the index.

The Fund’s Performance

This fund of funds has lagged as most international stocks have gyrated their way to big gains over the past 12 months. Its Institutional share class gained 39.6% during the year ending April 20, 2021, whereas the average member of the foreign large-blend Morningstar Category returned 43.7% and the MSCI ACWI ex USA category benchmark gained 43.0%. This fund of funds was slowed by the fact that the two foreign large-growth offerings and one foreign small/mid-growth fund on its roster couldn’t keep up with their bolder rivals. Finally, this fund has also posted superior risk-adjusted returns during the trailing three-, five-, 10-, and 15-year periods. Over the longest period, the Institutional share class has earned a Morningstar Risk-Adjusted Return of 2.3% versus Risk Adjusted Returns of negative 0.2% for both its average peer and the index.

Source: Morningstar

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Funds Funds

Jackson Square Large-Cap Growth Inv

Longtime manager Daniel Prislin has also announced that he will retire at the end of 2021. Jeff Van Harte and comanager Prislin have comanaged this fund since April 2005, with Chris Ericksen following shortly thereafter. Billy Montana became a comanager in January 2019, having joined the firm in 2014. The team looks for growth of intrinsic value rather than rapid earnings growth

Sensible approach, but stock-picking has been subpar

The team here has applied the same repeatable approach since taking the helm, but it has not translated into consistently strong stock-picking. Some recent tweaks are encouraging, but it’s too soon to tell how enduring these positive results will be. This team of generalists searches for companies undergoing or likely to undergo a fundamental change that will lead to higher growth and a robust business model that generates ample free cash flow. The team is happy to have companies with high earnings, but it must lead to growth in intrinsic value.

The team tries to avoid high-growth companies that are not great businesses or are simply riding a cyclical wave. It looks for firms that can grow their value in a variety of economic environments. It also prefers companies with low capital intensity, which tends to lead to below-average debt/capital ratios in the portfolio.

The approach culminates in a concentrated portfolio of roughly 30 stocks. The team still has an investment horizon longer than most but has made recent tweaks to ensure that it isn’t holding on to names experiencing fundamental deterioration. Recent results are encouraging, but the team still needs to demonstrate it can maintain an enduring edge

A compact portfolio

The team builds a relatively concentrated portfolio of approximately 30 stocks, but it consistently looks worse than the Russell 1000 Growth Index on quality measures such as average returns on invested capital, assets, and equity. Its average debt/capital ratio sometimes looks better, though. While the team takes valuation into account, the portfolio looks mixed on valuation measures. Its average price/book ratio is lower than the benchmark’s, but the portfolio looks more expensive on price/earnings, price/free cash flow, and price/sales ratios. Sector and industry bets are byproducts of the team’s bottom-up stock selection. In March 2021, the team held no consumer staples stocks relative to the bogy’s 4.3% and allocated 49% to tech stocks versus the bogy’s 44%.

The portfolio’s concentration has not contributed to higher active share recently (a measure of a portfolio’s differentiation from its benchmark). Active share was just 70% at the end of 2020, down from 85% in 2016. Large portfolio holdings like Microsoft MSFT and Amazon.com AMZN are also large benchmark constituents, contributing to the lower active share. Indeed, 20 of the portfolio’s 28 holdings were initiated in 2020 or later.

Challenged performance

Stock-picking has been subpar o n this team’s watch. From the April 2005 start of longest-tenured comanagers Jeff Van Harte and Daniel Prislin, theInvestor shares’ 11.3% annualized return through April 2021 trailed its typical large-growth peer and Russell 1000 Growth Index benchmark by 0.5 and 1.6 percentage points, respectively. A couple of bad years weigh on recent results. The fund landed in the bottom of its peer group in 2016. Poor stock picks in the healthcare and consumer cyclical sectors, including names like Valeant Pharmaceuticals VRX and TripAdvisor TRIP, hurt the most.

More recently, the fund struggled in 2019, landing in the worst-performing quintile of the large-growth category. TripAdvisor was again a large detractor. The team has made some tweaks, acknowledging a tendency to hold on to names too long, but it’s too soon to tell how fruitful these adjustments will be. The fund is off to a strong start with this modified approach, though. In 2020, its top-decile 44.1% beat the bogy’s 38.5% return. Losing less than the bogy in 2020’s first-quarter drawdown helped it to that strong calendar-year showing, with new investment ideas contributing the most to outperformance. Indeed, the team bought eight of the 11 top contributing names in 2020 over the prior 18 months.

(Source: Morning star)

Disclaimer

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Funds Funds

Fidelity Low-Priced Stock K6

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)

Disclaimer

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.