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.

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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.

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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.               

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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.

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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.

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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.

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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.

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Fidelity Low-Priced Stock K6

Human hand stacking generic coins over a black background with hexagonal golden shapes. Concept of investment management and portfolio diversification. Composite image between a hand photography and a 3D background.

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. Tillinghast’s risk-conscious approach doesn’t have much of a thrill factor. It can lead to results that lag well behind its peers during bull markets.

Yet the strategy’s typically subdued volatility and durability in market drawdowns have consistently made up for its seemingly pedestrian results in rallies. Over the past decade through April 2021, its Sharpe ratio (a measure of risk-adjusted returns) beat 95% of funds in either the small- or mid-cap categories (excluding growth funds). The strategy’s ability to maintain its edge, despite its massive asset base of more than $41 billion, underscores its advantages.

The fund’s older version has posted phenomenal absolute and risk-adjusted returns under Joel Tillinghast, who has managed it for more than three decades. From its 1989 inception through April 2021, the fund gained 13.7% annualized, among best showings of any surviving fund in the mid- or small-cap categories. It exhibited lower volatility than relevant benchmarks and the average midvalue and mid-blend fund (its current and former category, respectively) despite an above-average foreign-equity stake. The fund has also consistently preserved capital better than its rivals during stress periods.

For example, during 2020’s pandemic-induced bear market (Feb. 21-March 23), the fund dropped 36.6% versus the Russell Midcap Value Index’s 43.7% loss. The fund’s resilience and steady gains have reliably made for outstanding risk-adjusted returns, despite its at-times less-than-thrilling total returns.

The fund’s gains only matched the index over the past decade, but earned its returns with an ample cash cushion and steadier returns. The strategy’s girth does make outperformance more difficult than in the early years; Tillinghast cannot invest as easily in the smalland mid-cap fare that he favors. He’s done better at Fidelity Series Intrinsic Opportunities FDMLX, which is his smaller, more nimble fund available for investment only by other of Fidelity’s products

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.

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Invesco Intermediate Term Muni Inc

This is one of the larger muni credit teams in the industry, with 16 portfolio managers and 24 muni research analysts. It has grown primarily by way of Invesco’s acquisitions, though, and the current research configuration doesn’t have a significant history navigating market turbulence together. Veteran muni manager Mark Paris, Invesco’s muni-bond head, manages this strategy alongside nine other portfolio managers. The muni research team is large, and given this team’s preference for nonrated deals, the effort is adequate for this mandate.

The strategy absorbed a legacy Oppenheimer counterpart in mid-May 2020, though the portfolio’s profile largely remained intact over the past year. This team has a long-standing specialization in high-yield munis, and this portfolio can hold up to 35% of assets combined in below-investment-grade and nonrated bonds per its mandate. Over the past five years, the portfolio has maintained anywhere from 8% to 14% exposure to below-investment-grade munis and a similar range in nonrated issues. The team’s preference for smaller nonrated bonds can carry more liquidity risk than the typical muni national intermediate portfolio does. The team aims to minimize risk through sector diversification and limits issuer specific risk by keeping position sizes relatively small.

The strategy’s Y shares gained 3.6% annualized from October 2015 through April 30, 2021, modestly outpacing the typical muni national intermediate Morningstar Category peer’s 3.4% annualized gain, though it was also more volatile, with a top-quartile standard deviation over the same period.

Adequate for a higher-yielding offering

The process employed here combines top-down macro analysis and bottom-up credit research with a focus on below-investment grade fare, though it lacks a distinctive competitive edge. The 10-person management team running this strategy is responsible for portfolio construction and risk monitoring, which is essential as the managers regularly invest in nonrated bonds. Analysts provide long- and short-term outlooks and assign proprietary ratings to each bond. The credit research team leads also meet as needed to review any changes to these ratings as well as any special circumstances around distressed securities in the portfolio

This team has a long-standing specialization in high-yield muni bonds, and this portfolio can hold up to 35% of assets in below-investment-grade and nonrated bonds. Over the past five years, the portfolio has maintained anywhere from 8% to 14% exposure to below-investment grade munis and a similar range in nonrated issues. The team’s preference for smaller nonrated bonds can carry more liquidity risk than the typical muni national intermediate portfolio does. The team aims to minimize risks through sector diversification and limits issuer-specific risk by keeping position sizes relatively small.

Portfolio – Credit-oriented

As of March 2021, the portfolio’s largest sector exposures were industrial development and pollution-control (12%), hospital (12%), and dedicated tax (12%) revenue bonds. Life-care and higher education bonds were the next largest sectors at 8% and 7%, respectively. This portfolio has historically had a larger stake in nonrated fare than its typical muni national intermediate peer. As of March 2021, the portfolio’s 14% nonrated stake was more than 3 times its typical peer’s 3% stake. This exposure primarily comprises revenue bonds in continuing care retirement communities, hospitals, charter schools, and toll roads. The portfolio also has substantial exposure to tobacco settlement bonds; its 5% exposure is higher than the typical peer’s 1% exposure as well as the 0.4% in its S&P Municipal Bond Index benchmark.

Performance – Behaves as expected

The strategy’s long-term record under lead manager Mark Paris is decent, though it has seen more volatility than its typical national intermediate muni peer. Its Y shares gained 3.6% annualized from October 2015 through April 30, 2021, modestly outpacing the typical muni national intermediate peer’s 3.4% annualized gain, though it also had a top-quartile standard deviation over the same period, suggesting a more volatile ride than most.

The team’s preference to court more credit risk in this strategy than its typical peer means it may lag when muni credit markets get rough and benefit when risk is rewarded.

(Source: Morning star)

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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.

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Diamond Hill High Yield Inv

Bill Zox joined Diamond Hill in 2001 as an equity analyst. He was named a portfolio manager on Diamond Hill Corporate Credit DHSTX in April 2006 before taking over lead management in 2008. John McClain joined the firm in June 2014 as a credit analyst and was also named comanager of Diamond Hill Corporate Credit in February 2015.

The strategy’s investment approach stands out relative to its high-yield bond Morningstar Category peers’. The team focuses on relatively small issues and tends to make sizable bets on its best ideas (up to 10% per issuer), thereby increasing idiosyncratic and liquidity risk. The portfolio has on average about 30% of assets concentrated in its top 10 positions. That said, the team offsets those risks somewhat by treading lightly in the market’s lowest-quality names and limiting how much it will own of an individual issue. This process combines an intrinsic value-driven and contrarian approach to build a high current income portfolio with the opportunity for capital appreciation targeting a high-yield Morningstar Category best-quartile return over rolling five-year periods. While the portfolio’s concentration and idiosyncratic risks are material, the managers’ analytical rigor and responsible balancing of its risks provides comfort.

A distinctive and disciplined investment process

This process combines an intrinsic value-driven and contrarian approach to build a high current income portfolio with the opportunity for capital appreciation targeting a category best-quartile return over rolling five-year periods and a 150 basis points gross excess return over the ICE BofA U.S. High Yield Index benchmark.

Comanagers Bill Zox and John McClain execute a disciplined value approach: They buy issues when their market prices are lower than the team’s estimate of intrinsic business value and sell them when their initial thesis has played out or when there are better opportunities in the market. When valuations get rich and opportunities get scarce, the managers may run a larger-thanpeers allocation to investment-grade bonds to reduce the portfolio’s market risk

The team focuses on relatively small issues and tends to make sizable bets on its best ideas (up to 10% per issuer), thereby increasing idiosyncratic and liquidity risk. The portfolio has on average about 30% of assets concentrated in the top 10 positions. That said, the team offsets those risks somewhat by treading lightly in the market’s lowest-quality names and limiting how much it will own of an individual issue

An opportunistically managed portfolio driven by valuations

In response to the 2019 credit rally, the team raised its investment-grade bond exposure up to 20% at the end of that year, its highest level since the strategy’s January 2015 inception, leaving the strategy in a relatively good position to face the coronavirus-driven sell-off that started at the end of February 2020. As the market plunged, the team rotated capital and pushed the portfolio’s credit quality profile even higher as it found numerous investment-grade opportunities in names that included Nvidia, TJX, and Sysco. At the end of 2020’s first quarter, bonds rated BBB or higher represented close to 34% of assets.

After riding the Fed’s wave of purchases and betting on the economy reopening through the second half of 2020, the managers shifted gears. As valuations got rich, they rotated the portfolio out of some higher-rated longer-duration fare into shorter-maturity higher-yielding securities. At the end of March 2021, investmentgrade bonds represented less than 5% of the strategy’s assets, and its allocation to BB-rated bonds went down to 35% from almost 42% at the end of 2020 while bonds rated B moved the other way to 48% from 41% over the same period.

A category leader with a best-in-class long-term volatility-adjusted record

The team’s attention to valuations together with strong credit selection have helped the strategy hold up better than most rivals during high-yield sell-offs. For instance, despite the energy-led sell-off that started in June 2015, an investment in McDermott International MDR was the largest contributor that year, and the portfolio’s energy stake was the largest relative contributor to the strategy’s 0.3% return, which bested 90% of its category peers. Likewise, the strategy outperformed its typical peer by 184 basis points in the last quarter of 2018 and ended that year ahead of 97% of competitors.

(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.

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Invesco Global Growth A

The world large-stock Morningstar Category split into three new groups based on investment style. This offering lands in the world large growth category. That’s appropriate, as it follows a growth-oriented strategy and its primary self-chosen benchmark is the MSCI All Country World Index Growth rather than the core MSCI ACWI, which it considers secondary. That said, the fund’s approach to growth investing is more restrained than those of many other funds in the new category. The managers belong to an Invesco international team that follows a doctrine they call EQV, with valuation being the “V,” and they take that aspect seriously. The fund’s most recent portfolio statistics put it nearly on the border with the blend portion of the Morningstar Style Box, while the average for the world large-growth average is much further into the growth area. Recently, that difference has benefited the fund’s relative ranking in the new category, as value and core have outperformed growth, but longer-term, the opposite is true.

This strategy has been proved on other offerings from the same team that focus exclusively on non-U.S. markets. This one hasn’t had the same level of success, partly owing to that once-deep U.S. underweighting, but also stock selection in that important market was subpar. Selection has improved recently, but the portion of that team focused on the big U.S. market remains just Amerman and two analysts.

The Fund’s Approach

The fund uses the same process that has provided solid long-term returns for a variety of Invesco international funds. It receives an Above Average Process rating. The managers look for sustainable earnings growth available at reasonable valuations and try to avoid companies with high debt levels. They put importance on the “quality” of earnings, looking for recurring revenue streams, strong cash flows, and solid operating margins. At one time, the managers of the fund’s U.S. portion used a different approach, but in mid-2013 the U.S. manager was incorporated into what had been the international team (which Invesco calls EQV, for earnings, quality, and valuation), so now the entire fund uses the EQV strategy. The valuation portion plays a significant role, leading this portfolio to be more moderate on the growth spectrum than most rivals in the new world large-growth category.

Before the U.S.-focused manager joined the EQV team, the fund heavily underweighted the U.S. side of the portfolio. That portion gradually increased; by March 31, 2021, it stood at 56%, close to the level of the MSCI ACWI Growth. The managers say they probably won’t allow such a large gap to recur, so that stock choices drive performance. Meanwhile, the fund’s small-cap weight rose after it absorbed a small-mid sibling in 2020. It now has a market cap around one third that of the index.

The Fund’s Portfolio

Matt Dennis and his comanagers took advantage of the early-2020 bear market to make many changes. Dennis and Ryan Amerman, who focuses on the U.S. side of this offering, say they added 19 new stocks to the portfolio in 2020’s first quarter, while selling 11. That’s a much higher level of activity than usual for this fund, as the managers prefer to hold on to stocks for longer periods of time, and since then activity has slowed down. Compared with its MSCI ACWI Growth benchmark, the fund has some noteworthy distinctions. Not surprisingly, given this fund’s moderate take on growth and attention to valuations, the tech-sector stake of 21% is about 10 percentage points lower than the indexes. But the managers do like a number of tech names, such as JD.com, which they say has become preferable to Alibaba BABA (though they still own the latter) because they see a greater potential for margin expansion, and Dropbox DBX, which they also added last year. Conversely, the fund’s stake in financial services is twice the index’s level, even though they are wary of big U.S. and European banks. Rather, they own investment-focused stocks such as LPL Financial LPLA in the U.S. and Fineco in Italy, along with payment-focused firms such as Visa V and PayPal PYPL. The managers say the portfolio’s substantial U.K. overweighting owes not to macro factors but to the appeal of a number of specific stocks.

The Fund’s Performance

This fund now lands in the new world large growth category. Because growth has outperformed value and core over most of the 10 years since Matt Dennis was named sole lead manager (until the past six months saw a reversal of that trend), and this fund is more moderate than most of its new peers, it has been at a disadvantage. Over the trailing 10-year period ended April 30, 2021, the 9.1% annualized return of its A shares lagged the world-large-growth category average by 2 percentage points and the MSCI ACWI Growth by 2.8 percentage points. It’s worth noting, however, that it essentially matched the return of the core MSCI ACWI over that time period, and beat the average of the new world-large-blend category by 0.8 points. (The fund’s portfolio currently lands barely on the growth side of the growth/blend border of the style box.) One hindrance has been the fund’s so-so performance in major downturns. It didn’t stand out in 2015’s third quarter, and its 13.5% loss in 2018 was more than 5 percentage points worse than the growth index and new growth category, From Jan. 21 through March 23, 2020 (the peak and trough of foreign indexes in that bear market), its return was again similar to the MSCI ACWI and the category norm.

Source: Morningstar

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