Tag: US Market
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.
The index weights stocks by market cap, which channels the market’s view on the relative value of each holding. This is an efficient approach. Large-cap stocks attract widespread investor attention, so they tend to be priced reasonably accurately. Market-cap weighting also helps curb turnover and the associated transaction costs, with help from comprehensive index buffers. Index buffers improve diversification as well, allowing stocks to wander into value territory without trading them immediately. So, although this portfolio does not overlap with its value counterpart like most style index funds, it holds blend stocks like Home Depot HD and Costco COST that aid diversification. Its value-growth tilt mirrors the large-growth Morningstar Category average. The fund’s sector allocation approximates the category average as well. Market-cap weighting gives the fund a slightly larger-than-average market-cap orientation, but that shouldn’t affect performance much. Overall, this portfolio mimics the contours of the category norm, which accentuates the fund’s cost advantage and should help it outstrip its category peers. Mimicking the category average portfolio has caused this fund to look somewhat concentrated. At the end of April 2021, its 10 largest holdings represented more than half the portfolio. Tech stocks comprised about 44% of the portfolio. Investors may pause at this concentration, but it reflects the state of the large-growth market and shouldn’t translate to volatile category-relative performance.
This fund has posted terrific returns, outpacing the category average by 2.21 percentage points annually over the 10 years through April 2021, with comparable volatility. A low cash drag, best-in class fee, and favorable exposure to communications stocks have driven much of the outperformance. This fund relies solely on the market’s sentiment to weight its portfolio, so it does not shy away from stocks its active peers may consider overvalued. That has worked out well in the communication services sector, where the most richly valued firms have performed among the best.
Taking larger than-average stakes in Netflix NFLX and Alphabet GOOG, for example, proved to be a winning approach, as the companies have continuously exceeded steep expectations over the past decade. Unlike many of its active peers, this fund is always fully invested. This aids performance during market rallies but can hinder it in turbulent stretches. The fund has held up well, though, capturing only 94% of the category average’s downside and 104% of its upside over the past decade. This fund’s greatest performance edge is its fee. At 0.04%, its expense ratio ranks among the cheapest in the category, and low turnover leads to low transaction costs.
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.
First, GE has materially reduced its debt burden by $30 billion during Culp’s tenure. While some portfolio decisions like the sale of biopharma were painful, they were well-priced and provide the firm with critical flexibility to shift from a persistent defensive to offensive posture. While GE industrial net debt/EBITDA remains high, we think that the eventual aerospace recovery and continuous improvement initiatives will help drive this figure below 2.5 times by 2023. The gradual sale of Baker Hughes furthers GE deleveraging goals, while allowing the firm to focus on its core portfolio.
Second, we believe narrow-body commercial revenue should recover at a more accelerated pace relative to wide-bodies given favorable domestic over international travel trends. We also expect highly profitable narrow-body aftermarket services will recover ahead of the rest of the commercial aerospace portfolio since this business is driven by departures as opposed to revenue passenger miles. Deferring shop visits can add 20%-30% to airlines’ costs, and passenger survey data persistently reveals a majority of passengers are willing to travel once vaccinated. From this standpoint, GE is well-positioned to capitalize on this trend, with more narrow-bodies that are 10 years or younger than the rest of the industry, and roughly 62% of its fleet seeing one shop visit or less. At a minimum, we believe GE has an opportunity to enjoy strong incremental margins on a recovery matching decremental margins during the recession.
Finally, healthcare is a global leader in precision health, with technology helping practitioners gain valuable insights and eliminating waste in the healthcare system. We expect 50-basis points of consistent margin improvement on lower mid-single-digit growth.
Fair Values and Profit Maximisers
After reviewing Airbus’ announcement that it’s increasing production rates for the A320 family to 64 per month by the second quarter of 2023, we raise our GE fair value estimate to $15.70 from $15.30. Airbus may ask suppliers to enable production rates to as high as 75 per month by 2025. However, we would like to see Airbus build a bigger backlog before increasing our forecast to these levels. Even so, we think this supports our view that the back half of 2021 should witness a rosier commercial aero outlook based on the domestic travel data we previously highlighted.
Even with an estimated $3.7 billion headwind from the end of most of GE’s factoring program, we’re expecting just over $4.6 billion of industrial free cash flow. We also model adjusted EPS of $0.28 for 2021, just over the top end of management’s guide. Nonetheless, we still value GE at over 20 times 2023 adjusted EPS, or about 17.5 times 2023 industrial free cash flow per share. In our view, the two most important contributors to GE’s earning power lie in GE Aviation and GE Healthcare. Aviation will have significant headwinds in the front half of 2021. Nonetheless passenger survey data and airline booking data suggest significant pent-up demand. Longer term, we think global middle income class growth will drive demand once more and help GE commercial aviation recover lost sales by 2024 to year-end 2019 levels. GE’s fleet is young and strongly positioned in narrow bodies, which should help GE as domestic travel recovers ahead of international travel. Further, a majority of its fleet is still yet to see over one shop visit. Airlines deferring maintenance, moreover, can add considerable costs to their bottom line.
As for GE Healthcare, we assume key market drivers include increased access for healthcare services from emerging economies and an aging U.S. population, coupled with digital initiatives that save practitioners’ time, while protecting them from risks. Rolling this up, we believe these factors will help drive lower mid-single-digit sales growth, coupled with a minimum 25 basis point improvement in year-over-year margins. For Power and Renewables, we see both segments benefiting from the energy transition, but with the lion’s share of the sales growth opportunity flowing through to renewables. That said, we expect minimal contributions to profitability over the next couple of years from either business, before ramping up to mid-single-digit plus margins by midcycle.
General Electric’s Company Profile
GE was formed through the combination of two companies in 1892, including one with historical ties to American inventor Thomas Edison. Today, GE is a global leader in air travel, precision health, and in the energy transition. The company is known for its differentiated technology and its massive industrial installed base of equipment sprawled throughout the world. That installed base most notably includes aerospace engines, gas and steam turbines, onshore and offshore wind turbines, as well as medical diagnostic and mobile equipment. GE earns most of its profits on the service revenue of that equipment, which is generally higher-margin. The company is led by former Danaher alum Larry Culp who is leading a multi-year turnaround of the storied conglomerate based on Lean principles.
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.
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.
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.
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.
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)
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.