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 31/12/2018

Portfolio Characteristics

as of 31/12/2018
Main indicators Fund Index
No. of securities 52 724
Weighted Average Market Cap ($bn) 84.5 111.8
Median Market Cap ($bn) 28.5 8.3
Projected P/E Ratio 9.2x 12.4x
Price/ Normal Earnings 7.2x 13.1x
Price/ Book 1.5x 2.0x
Price/ Sales 1.3x 1.8x
Projected EPS Growth 5.5x 5.4x
Active share (%) 84.4 -

Top 10 Position Details

as of 31/12/2018
Security name Sector % AUM
American International Group Financials 5.37
Hewlett Packard Enterprise Information Technology 4.10
Citigroup Inc Financials 3.98
Wells Fargo & Co Financials 3.90
General Electric Co Industrials 3.47
Oracle Corp Information Technology 3.19
General Motors Co Consumer Discretionary 3.18
Goldman Sachs Group Inc Financials 2.97
Microsoft Corp Information Technology 2.78
Dicovery Inc-C Communication Services 2.65

Investment Manager's Commentary

as of 31/12/2018

Market Review and Outlook

The S&P 500 Index was up more than +10% through the first nine months of the year before posting its worst calendar quarter in 7 years, falling -13.5% in Q4. The end result was a -4.4% return for calendar year 2018. Until the most recent quarter, robust corporate earnings growth had overcome political unrest across the globe. In the fourth quarter,
however, ongoing trade tensions came to the forefront. Markets began pricing in slowing economic growth in several major economies that are important trading partners with the US. In contrast to this however, real GDP growth in the US was a healthy +3.4% in the most recent quarter and the unemployment rate remains below 4%. Both the Federal
Reserve and the European Central Bank implemented and spoke of future restrictive monetary policy. This appears to have added to equity investor apprehension. The forward P/E ratio for the S&P 500 declined from 20.0x at the beginning of the year to 15.4x at the end of the year. The index’s median P/E since 1990 is 16.4x, so it went from well above average to comfortably below average over the course of the year. Fears that slowing economic growth would weaken demand weighed heavily on oil prices. WTI crude closed the year at $45/barrel, down 25% from the beginning of the year ($60) and more than 40% from its early October high ($76). Commodity securities were among the worst-performers of the year, with the energy (-18%) and materials sectors (- 15%) leading the decline. Industrials and financials, also cyclical sectors, each declined -13% and lagged the market by a wide margin. The non-cyclical healthcare and utilities sectors performed best, returning +6% and +4% during the year, respectively. The performance dispersion and resulting valuation differentials among stocks that are economically sensitive compared to those that are not suggests the market has begun to price in a recession scenario. Economic metrics do not yet verify a meaningful change from positive economic growth. At present, while acknowledging the uncertain economic outlook, we view the valuation support of cyclical stocks as vastly superior to noncyclicals. This valuation discrepancy provides a margin of safety in the long run almost irrespective of near term economic growth.

To illustrate the stark contrast in valuation between sectors, consider banks relative to utilities. Five years ago, S&P 500 banks traded at 12.5x consensus earnings while S&P 500 utilities traded at 15.5x. Since then, bank earnings have grown 53% compared to 36% for utilities, but bank stocks have lagged utility stocks. Utilities’ total return outpaced its
earnings growth considerably, while banks’ total return lagged its earnings growth substantially. As a result, bank P/Es compressed while utility P/Es expanded. Today, S&P 500 banks trade at just 9.9x consensus earnings while S&P 500 utilities trade at 17.1x. This translates into an earnings yield of more than 10% for banks and just 5.8% for utilities—a
rich valuation for an industry with modest growth prospects.

The valuation disparities among sectors has led to the portfolio’s largest sector deviations from the benchmark since the financial crisis. Accordingly, the portfolio trades at a substantial valuation discount to the index, which makes us optimistic about its prospects irrespective of market direction or temperament. The portfolio trades at 7.3x normal
earnings compared to 13.1x for the Russell 1000 Value and 16.1x for the S&P 500. The portfolio’s price-to-book ratio is 1.3x compared to 1.8x and 2.9x for the Russell 1000 Value and the S&P 500, respectively.

Fund

The Fund underperformed the Russell 1000 Value Index in 2018. The portfolio’s valuation multiples are lower than that of the index, which hurt relative performance over the course of the year as value lagged growth. For example, 65% of the portfolio was invested in stocks with a price-to-book ratio of less than 2x compared to about 41% for the Russell 1000 Value. This overweight, and corresponding underweight to more richly-valued securities, caused more than two-thirds of the underperformance in the year. Stock selection in financials and consumer discretionary, along with the underweight position in healthcare also detracted from performance. The overweight position and positive stock selection in technology, along with positive stock selection in consumer staples helped relative performance. The largest detractors to relative performance were AIG, Adient, Vodafone, Apache, and Citigroup; the largest positive contributors were Ericsson, Microsoft, Discovery, Hewlett Packard Enterprise, and ARRIS International.


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