3 DEC, 2021
By Constanza Ramos
We have received the latest data available from SharingAlpha that shows the Fund Selector’s favourite funds. On this occasion we have selected US Large-Cap Equities to understand which have been the preferred options chosen by the professionals within the US Large-Cap market.
The SharingAlpha initiative gives us the possibility to find out which fund managers and funds are preferred by European advisors and fund selectors. Fund selectors are asked to rate funds according to their expectations based on three parameters (3 P’s):
On this occasion we have chosen to analyse the two US Large-Cap Equities in this month’s SharingAlpha data from different categories, Polen Capital Focus US Growth Fund and Robeco BP US Premium Equities.
Dan Davidowitz, Portfolio Manager at Polen Capital
The Polen Capital Focus US Growth Fund is a concentrated, high quality, growth fund. We believe that by focusing our investments in a small number of financially superior and competitively advantaged businesses, and nothing less is the best way to protect and grow our clients’ assets.
It is our experience that superior investment returns are generated by the compounded earnings growth of the companies we invest in over a long holding period.
We typically hold 20-30 outstanding businesses and each must meet 5 very high hurdles, we call them our guardrails. These guardrails require each company to possess a cash rich/low debt balance sheet, excess free cash flow every year, returns on capital sustainably higher than 20%, stable to increasing profit margins, and better than average organic revenue growth. By requiring each company to meet all of these hurdles, we believe we can eliminate many of the biggest risks companies face like high debt loads, high cyclicality, heavy regulation and capital intensity.
Our research then identifies what we believe are the most competitively advantaged businesses with excellent earnings growth over the coming 5-10 years or more. To invest in a company, we do months or, sometimes, years of research to make sure we understand deeply the companies we own, their competitive advantages and growth prospects. Once we decide to invest, we adopt a true ownership mentality, which means a long-term mindset. We are constantly monitoring the businesses we own to make sure they continue to have robust long-term earnings growth prospects. Their earnings stability and financial strength also offer a “margin of safety” to our investments and have in the past resulted in less volatility and better capital preservation during market downturns.
Currently, many of the companies in which we are invested are directly benefitting from global digital transformation in some way. In fact, many of our companies have created and maintain a leadership position in these markets. These secular growth areas were already well in motion before the Covid-19 pandemic began, but have accelerated since.
Examples include the proliferation of digital payments, e-commerce, online advertising, workflow automation, as well as digital productivity and collaboration tools. Our fundamental, bottom-up research process and our investment philosophy have been extremely consistently employed for over three decades and we believe it gives us a competitive advantage in the marketplace.
Another interesting US Large-Cap from the list of favourites chosen by selector’s is:
Duilio R. Ramallo, CFA Fund manager
Robeco BP US Premium Equities is an actively managed all-cap fund that invests across market capitalizations, sectors and industries. The portfolio is built from the bottom-up through rigorous fundamental analysis focusing on companies which exhibit attractive valuation, strong business fundamentals, and improving business momentum.
Robeco BP US Premium Equities is ahead of the Russell 3000 Value Index over the first 10 months of the year adding value through a variety of sectors, led by Communication Services, Consumer Discretionary, Energy, Utilities and Consumer Staples. Stock picking has been strongest in the first three sectors while having underweight exposure to the ‘expensive’ sector of Consumer Staples and Utilities has added considerable value to relative performance.
Looking ahead, earnings should continue to support equity prices over the near-to-intermediate term, as on top of the final expected Q3 growth of 38.6%, Q4 earnings for the companies that comprise the S&P 500 are projected to advance by 23.1%. Overall earnings for calendar year 2021 are expected to grow between 44.6% (FactSet) and 48.5% (Refinitiv), the best showing since 2009.
While the Fed is expected to begin tapering bond purchases as early as this month, they are not slated to cease purchases until next June. Overall financial conditions remain attractive for risk assets with low nominal and negative real interest rates, low credit spreads and over USD 2 trillion in excess savings on consumer balance sheets. What happens in Washington remains a wild card.
That being said, the sky is not cloud-free, with inflation the primary concern overhanging the market. With the CPI up by 5.4% on a year-on-year basis through September and the Fed’s preferred measure of the Core Personal Consumption Price Index (PCE) standing at 3.6%, and well above the Fed’s 2.0% target for six straight months, investors are questioning what the term ‘transitory’ really means.
To date, bottlenecks have been the culprits that triggered the bulk of the inflation gains and are generally spread over four areas: energy, employment, transportation and components. Each have their own specific factors affecting prices and all are collectively interrelated. The 1.3% jump in the Employment Cost Index in the third quarter from the second was the largest since 2001 and could be a harbinger of inflation being higher for longer as wage gains tend to be sticky. Whether this prompts the Fed to tighten more aggressively, or bond market vigilantes take it upon themselves to do so, remain as open questions.
We will continue to focus at a company-by-company level and as always, the portfolio remains well positioned with holdings that reflect Boston Partners’ three circle characteristics – attractive valuations, solid business fundamentals, and identifiable catalysts.
If you want to learn more about US large-Cap and Equities have a look at our other articles on the topic.