US Large Cap
The US Large Cap strategy aims to outperform the S&P 500 by 1-2% p.a. (gross of fees) over a market cycle (typically 3-5 years).
The strategy is designed to offer investors diversified exposure to US equities. Our approach is driven by a fundamental research process in which our analysts play a key role in stock selection. The strategy has a growth bias, and we look to add value by investing in companies with unrecognized or under-appreciated earnings potential. The portfolio invests in 50 to 70 stocks which are greater than $3 billion in market capitalization.
The US Large Cap Equity team is managed by Matt Ward. The team is made up of eight analysts with an average of 15 years of investment experience. The analyst research and grading process is the primary driver of stock selection.
We believe that high quality, reasonably priced companies with strong growth prospects and a sustainable competitive advantage will produce superior long-term investment returns. We consider markets to be inefficient and through intensive bottom-up research that focuses on longer-term fundamentals, we believe we gain an information advantage versus Wall Street. In analyzing individual companies we focus on exploiting what we call an ‘earnings growth gap’, the difference between our estimates of longer-term earnings growth potential versus consensus. Most of the Street tends to be short-term oriented; focusing on a company’s prospects over the next 3 to 6 months. Our approach focuses on a longer time period, looking out over the next 3 to 5 years.
The universe – generating investment ideas
Our investment universe consists of over 1000 stocks, greater than $3 billion in market capitalization. Each sector analyst is responsible for using his or her expertise to come up with a working list of stocks within his or her respective area. Investment ideas stem from internal fundamental research of both companies and the industries in which they operate and compete. While our analysts utilize brokerage research as a source of company and industry information, all portfolio recommendations are based on our own in-house research. We also work closely with the global equity team, leveraging each other’s sector expertise to bring greater insights into our idea generation. At a strategy level this ‘workable list’ typically totals between 200 and 250 stocks.
From working list to purchase candidates
When looking for investment ideas, the analysts consider stocks for one of two ‘growth gap’ categories; secular and opportunistic. The analysts use their sector expertise and industry knowledge to select stocks that they believe can benefit from the respective story. On a company specific level, the analysts are expected to evaluate a company’s prospects for growing top-line revenues, improving operating margins, and potentially redeploying cash. Having identified a number of stocks of interest within a sector, the analyst then carries out rigorous analysis of the company and the industry in which the company operates and competes, building up a comprehensive picture of a company’s strategy, competitive positioning and industry dynamics. This is achieved through a mixture of one-to-one meetings with management, industry conferences and site visits with senior company representatives, their competitors and other industry participants. It is during this stage of the process that we construct our earnings ‘growth gap’ model.
Once we have determined that a potential exploitable earnings ‘growth gap’ exists, we then try to determine if it is sustainable. This determination is underpinned by intensive bottom-up research where we evaluate a company’s business prospects as well as quality, which include management track record and corporate governance. We view valuation as complementary to our investment thesis and lastly evaluate price, looking at fair market value, and value in comparison to the sector and universe. The result of this extensive research process is a stock ‘grade’. Our analysts grade stocks from 1 to 4. Grades 1 and 2 indicate a buy recommendation and grades 3 and 4 indicate a sell recommendation. There is no hold recommendation, which ensures analyst conviction in grading stocks. The list of purchase candidates typically consists of 100 to 125 stocks across the strategy.
- Defined investment philosophy with a focus on improving cash flows and improving returns on invested capital
- Active stock picks; not beta bets
- Long term focus and consistent performance with risk control measures
- Low tracking error versus benchmark
- Separate Accounts