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Analysis: Managed by the team of Bill Priest and David Pearl, this large cap focused U.S. fund has struggled to keep up with the S&P 500 in the past couple of years. However, long term numbers are very strong, outpacing not only the benchmark but most of the funds peers.
The fund is managed using a value focused style that combines bottom up security selection with top down portfolio construction. The team will look at the macro environment to gain an understanding of the potential opportunities and potential risks. Once this is understood, they will determine the sector mix of the fund.
When analyzing companies, the approach is a bottom up, value focused approach that looks for well managed, high quality companies with strong free cash flows and a history of increasing shareholder yield through dividends, buybacks and debt repayments.
The end result is a portfolio that tends to be reasonably well diversified, holding between 50 and 60 names. Currently, the top 10 holdings make up nearly 38% of the fund. Most of the stocks in the portfolio are ones that you would recognize – names like Microsoft, Exxon, Visa and Comcast, but they aren’t afraid to veer into some lesser known names when the opportunity is right. From a portfolio positioning standpoint, the fund looks pretty similar to the broader S&P 500, with the exception that the fund is dramatically underweight in consumer staples.
The manager is expecting an environment of slower growth and has positioned the fund with well managed companies with good brand recognition, intellectual property rights and strong secular growth trends. They are not expecting multiples to expand. In fact, they are expecting a contraction in the near term, which will put the focus back on shareholder yield as a main source of return.
Given the positioning of the fund, we would expect that it will perform very similarly than the broader market, but with less volatility. We think that for more risk averse investors, this is a good fund to consider as a core U.S. equity holding. However, for those looking for a bit more kick, there are other choices available.