Alma Hotchkis & Wiley US Large Cap Value Equity Fund

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Overview

  • Alma Hotchkis & Wiley US Large Cap Value Equity Fund seeks current income and long-term capital growth by investing in a concentrated portfolio of undervalued large US companies.
  • Management of the fund is delegated to Hotchkis & Wiley LLC.

Share Class

NAV

Cumulative Performance (%)

Fund Inception 6 August 2014

Daily Monthly Ytd 1Yr 3Yr 5Yr Incept. Incept.Date

The performance data shown represents past performance. Past performance is not a guarantee of future results. Current performance may be lower or higher than the performance quoted. The investment return and the principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost.


Strategy & Manager

Funds Strategy

Investment objective: to seek current income and long-term capital growth by investing in a concentrated portfolio of large US companies

  • Investment process: analyse long term company fundamentals through in-house bottom-up research aiming to identify undervalued stocks
  • The fund typically holds 40 to 60 securities and generally invests in companies with a market capitalization above $ 3billion
  • Benchmark: Russell 1000 Value Index


Investment Manager

Hotchkis & Wiley is an SEC-regulated, Los Angeles-based investment adviser founded in 1980, specialized in US value equity and US high yield bond strategies.

  • Interests aligned with investors: Hotwhkis & Wiley is an employee owned firm– all 21 investment professionals own equity
  • George Davis, the CEO of Hotchkis & Wiley and senior portfolio manager of the fund, has over 30 years of investment experience. He coordinates the day-to-day management of around $27 billion of equity value assets
  • Hotchkis & Wiley manage $31billion

Key Persons

George Davis, Jr. CEO, Portfolio Manager and Principal

Mr. Davis became CEO in 2001. In his role as portfolio manager, Mr. Davis plays an integral part in the investment research review and decision-making process.  He coordinates the day-to-day management of Large Cap Fundamental Value and Large Cap Diversified Value portfolios, as well as represents the firm’s investment strategies to current and prospective clients. He also provides expertise and insight into the capital goods and financials sectors. Prior to joining the firm, Mr. Davis was an assistant to the senior partner of RCM Capital Management. He began his career in equity research with internships at Cramer, Rosenthal & McGlynn and Fidelity Management & Research.

Mr. Davis received his BA in Economics and History and MBA from Stanford University.

 

Scott McBride, CFA Portfolio Manager and President

Mr. McBride became President of Hotchkis & Wiley in 2016. In his role as portfolio manager, Mr. McBride plays an integral part in the investment research review and decision-making process. He coordinates the day-to-day management of Large Cap Fundamental Value, Large Cap Diversified Value, Global Value and International Value portfolios, as well as represents these strategies to current and prospective clients. He also provides expertise and insight into the consumer, financials, healthcare and technology sectors. Prior to joining the firm, Mr. McBride was an associate consultant with Deloitte Consulting and worked as an investment marketing analyst with Fidelity Investments.

 

Patrick Meegan, CPA Portfolio Manager

In his role as portfolio manager, Patrick Meegan plays an integral role in the investment research review and decision-making process. He coordinates the day-to-day management of all High Yield bond and Capital Income portfolios. He also provides expertise and insight into the financials and healthcare sectors. Mr. Meegan began his career at H&W as an investment analyst and became portfolio manager in 2001. Prior to joining the firm, Mr. Meegan was an audit manager at Arthur Andersen and specialized in financial statement audits and advising clients on SEC reporting issues.

Mr. Meegan, a Certified Public Accountant, received his BA in Business Administration with honors from California State University, Fullerton and his MBA with honors from the Anderson School of Management at the University of California, Los Angeles.

 

Judd Peters, CFA Portfolio Manager

In his role as portfolio manager, Mr. Peters plays an integral part in the investment research review and decision-making process. He coordinates the day-to-day management of Large Cap Fundamental Value, Large Cap Diversified Value, Small Cap Diversified Value and Global Value portfolios, as well as represents these strategies to current and prospective clients. He also provides expertise and insight into the capital goods, energy and technology sectors. Prior to joining the firm, Mr. Peters was an analyst in the corporate finance department of an investment banking firm.

 

Patty McKenna, CFA Portfolio Manager and Principal

In her role as portfolio manager, Ms. McKenna plays an integral part in the investment research review and decision-making process and represents the firm’s investment strategies to current and prospective clients. She also provides expertise and insight into the consumer and healthcare sectors. Prior to joining the firm, Ms. McKenna was an equity analyst at Trust Company of the West. Before entering the field of investment management, she has worked for five years in corporate finance at Bankers Trust and then at Fieldstone Private Capital Group. Ms. McKenna began her career as a forensic accountant in 1983.

 

Sheldon Lieberman Portfolio Manager and Principal

In his role as portfolio manager, Mr. Lieberman plays an integral part in the investment research review and decision-making process and represents the firm’s investment strategies to current and prospective clients. He also provides expertise and insight into the energy and technology sectors. Prior to joining the firm, Mr. Lieberman was the chief investment officer for the Los Angeles County Employees Retirement Association (“LACERA”). At LACERA, he was responsible for overseeing the fund’s investment activity, as well as developing and implementing investment policy, strategy and guidelines. Prior to his position at LACERA, he was manager of trust investments at Lockheed Corporation.


Statistics & Commentary

Performance

The performance data shown represents past performance. Past performance is not a guarantee of future results. Current performance may be lower or higher than the performance data quoted. The investment return and the principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost.

Sector Breakdown as a % of AUM

as of 31/03/2019

Portfolio Characteristics

as of 31/03/2019
Main indicators Fund Index
No. of securities 51 722
Weighted Average Market Cap ($bn) 104.8 119.8
Median Market Cap ($bn) 33.7 9.2
Projected P/E Ratio 10.4x 13.1x
Price/ Normal Earnings 8.2x 14.2x
Price/ Book 1.4x 2.0x
Price/ Sales 1.1x 1.5x
Projected EPS Growth 6.0x 5.6x
Active share (%) 83.2 -

Top 10 Position Details

as of 31/03/2019
Security name Sector % AUM
American International Group Financials 5.01
Citigroup Inc Financials 4.30
General Electric Co Industrials 4.29
Microsoft Corp Information Technology 3.94
Wells Fargo & Co Financials 3.89
Hewlett Packard Enterprise Information Technology 3.22
Goldman Sachs Group Inc Financials 3.18
General Motors Co Consumer Discretionary 3.15
Oracle Corp Information Technology 2.80
Hess Corp Energy 2.58

Investment Manager's Commentary

as of 31/03/2019

Market Review and Outlook

After falling -13.5% in 4Q 2018, the S&P 500 Index returned +13.7% in the first quarter of 2019. The swift decline and equally rapid recovery were both triggered by changes in investor sentiment as opposed to changes in underlying economic or business fundamentals. Investor concerns emerged late in 2018 regarding trade tensions and a hawkish Fed; this combination created fears of impending global economic recession. These concerns appeared to fade during the first quarter of 2019 due to positive progress on US/China trade talks and dovish comments from the Federal Reserve. Throughout this period we have witnessed a significant decline in longer maturity Treasury yields and a flattening of the yield curve. After reaching 3.2% in late 2018, the 10-year note yield fell below 2.4% in March, its lowest level in more than a year despite the Fed’s four 2018 rate hikes. In response to these changes, all S&P 500 sectors were positive in the first quarter, with the best returning +20% (technology) and the worst returning +7% (healthcare). The S&P 500’s forward P/E ratio increased from 15.4x at the end of 2018 to 17.1x at the end of the first quarter. The index’s median valuation over the past ~30 years is 16.4x; while it is now slightly above median, it is considerably lower than the 20x level where it began 2018.

While the overall market appears fairly valued, we find solace in the large valuation disparity between certain segments of the market—some are attractively valued, some richly valued. The S&P Banks Industry Group trades at 9.9x forward earnings. The median multiple for banks over the last 30 years is 12.0x, so the group currently trades at about 80% of its historical average. Considering that banks’ balance sheets are as strong as they have been in decades, and nearly 80% of earnings are being returned to shareholders via dividends and share repurchases, we view banks’ risk/reward tradeoff as especially compelling. The portfolio’s banks trade at an even lower valuation (8.9x consensus earnings and 8.1x normal earnings) with a payout yield of 11% (dividends + share repurchases as a percentage of total equity). Conversely, the S&P Utilities Industry Group trades at 18.8x forward earnings, or double the valuation of banks. The median multiple for utilities over the last 30 years is 14.4x, so the group currently trades at about 130% of its historical average. Opposite of banks, utilities have added financial leverage, increasing net debt to EBITDA by 50% over the past decade from 3.4x to 5.1x. Utilities can support higher debt levels than most other businesses, but paying high multiples for slow growing businesses with increased leverage is not an attractive proposition in our view. Recognizing the considerable valuation dispersion across sectors, the portfolio exhibits larger-than-normal sector deviations from the benchmark.

The Russell 1000 Growth Index outperformed the Russell 1000 Value Index in the quarter by about 4 percentage points (+16% vs. +12%); since the beginning of 2017, growth has outperformed value by 32 percentage points (+49% vs. +17%). Interestingly, the combination of earnings growth plus dividends paid has been similar for the underlying growth and value companies over this period. The performance difference, therefore, is almost entirely explained by changes in price multiples. The P/E ratio for the Value index has contracted by more than 20% while the P/E ratio for the Growth index has expanded by about 8%. This repricing has contributed to not only to the large valuation differences across sectors but also to notable spreads within sectors. In response to this backdrop our Value approach leads to a portfolio that trades at a large discount to the Value index and an exceptional discount to the Growth index. The portfolio’s price-to-normal earnings ratio is just 58% of the Russell 1000 Value’s P/E compared to the long term average of 71%; the portfolio’s price-to-normal earnings ratio is just 35% of the Russell 1000 Growth’s P/E compared to the long term average of 49%. As active investors with a commitment to long-term fundamental valuation, we view this environment as conducive to our approach and we are optimistic about the portfolio’s prospects.

Fund

The fund outperformed the Russell 1000 Value Index in the first quarter of 2019. Positive stock selection drove about 85% of the outperformance in the quarter, with the balance coming from favorable sector allocation. Positive stock selection in financials and energy were the largest contributors. The underweight position in healthcare and overweight position in technology were more modest positive contributors. On the negative side, the overweight in financials and underweight in real estate detracted from performance along with stock selection in consumer discretionary and technology. The largest positive contributors to relative performance in the quarter were General Electric, Hess, Apache, Hewlett Packard Enterprise, and Murphy Oil; the largest detractors were Vodafone, Adient, State Street, Wells Fargo, and Embraer.


Facts & Documents

Facts

Fund Domicile: Luxembourg

Management Fee: 0.75% p.a. for I shares

Fund Type: UCITS SICAV

Fund Launch: 6 August 2014

Base Currency: USD

Depositary, Administrator, Transfert Agent: BNP Paribas Securities Services (LU)

Dealing: Each day with a 1-day notice

Cut-off time: 5 pm CET

Management Company: Alma Capital Investment Management

Investment Manager: Hotchkis & Wiley Capital Management, LLC (US)

Fund Managers: George Davis, Scott McBride, Judd Peters, Patty Mckenna, Sheldon Lieberman, Patrick Meegan

Countries where the fund is registered:
France, Germany, Luxembourg, Switzerland, United Kingdom, Austria

Identifiers:

Institutional USD Capitalisation share class
ISIN: LU0963547111   Ticker: ALDCPBI LX    Launch: 6 Aug 2014

Retail USD Capitalisation share class
ISIN: LU0963547970   Ticker: ALDCBRU LX    Launch: 21 Nov 2017

Documents

SICAV ALMA CAPITAL INVESTMENT FUNDS
  1. ACIF Prospectus