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 28/06/2019

Portfolio Characteristics

as of 28/06/2019
Main indicators Fund Index
No. of securities 50 722
Weighted Average Market Cap ($bn) 123.3 115.1
Median Market Cap ($bn) 37.1 9.7
Projected P/E Ratio 11.0x 13.7x
Price/ Normal Earnings 8.5x 14.8x
Price/ Book 1.5x 2.1x
Price/ Sales 1.1x 1.6x
Projected EPS Growth 5.9x 5.5x
Active share (%) 83.0 -

Top 10 Position Details

as of 28/06/2019
Security name Sector % AUM
American International Group Financials 4.86
Wells Fargo & Co Financials 4.56
General Electric Co Industrials 4.42
Citigroup Inc Financials 4.24
Microsoft Corp Information Technology 4.14
Goldman Sachs Group Inc Financials 3.63
General Motors Co Consumer Discretionary 3.17
Hewlett Packard Enterprise Information Technology 3.05
Discovery Inc-C Communication Services 2.77
Oracle Corp Information Technology 2.68

Investment Manager's Commentary

as of 28/06/2019

Market Review and Outlook

The S&P 500 Index returned +4.3% in the second quarter and is now up +18.5% since the beginning of the year, fully recouping its losses from the fourth quarter of 2018. An increasingly dovish tone from the US Federal Reserve contributed to positive equity markets, as Chairman Jay Powell indicated a readiness to lower interest rates for the first time in more than a decade. The Federal Funds futures market is pricing in a high likelihood of a rate cut during the Fed’s next meeting. In addition, geopolitical tensions subsided, as the US reached a deal with Mexico to halt proposed tariffs, and US-China trade talks resumed. All S&P sectors were positive except energy, as crude oil prices declined by 3% in the quarter. Growth again outpaced value, further widening the valuation gap. Over the past five years, the Russell 1000 Growth Index has more than doubled the Russell 1000 Value Index, returning +87% compared to +43%, cumulatively.

We continue to view the overall equity market as about fairly valued, perhaps slightly overvalued. However, this is far from a normal market. On the one hand, the market’s valuation suggests that investors have a reasonably healthy risk appetite. On the other hand, certain attributes imply that investors are exceptionally risk averse. A glaring example outside of US equity markets is the negative yield on some country’s government debt (e.g. German bunds), where investors are guaranteed to lose money if held to maturity. A preference for a small, yet certain loss over a wider range of outcomes exemplifies extreme risk aversion. This risk aversion is borne out in US equity markets through a comparison of different sectors. Sectors with low economic sensitivity and stable earnings streams have been flooded with capital while cyclical sectors have been shunned, irrespective of valuation. Regulated utilities, for example, are largely insulated from economic slowdowns and exhibit more stable earnings than most other businesses. This has appealed to risk averse equity investors, which have flooded the sector with capital. As a result, utilities’ P/E multiples are now close to 20x, an increase of 20% over the past five years. We view this as a rich price to pay for a sector with modest prospects for growth, and do not view this as a safe investment. While it does not represent a certain loss, the long-term upside potential at these valuations are paltry at best. Most REITs, consumer staples, and healthcare companies exhibit a similarly unappealing long-term risk-reward tradeoff.

In many cases, banks and other financials trade at half the valuation of the non-cyclical markets segments. Select companies within technology, industrials, and energy also trade at substantial discounts to their intrinsic values. These sectors have a higher correlation with economic cycles than non-cyclicals, but valuations render the long-term prospects more appealing irrespective of near-term economic growth. Also, we have a deep-rooted preference for strong balance sheets, which provides a form of protection should the macro environment take a turn for the worse. In our view, this combination represents a considerably less risky investment—and one with considerably more upside potential.

The wide dichotomy between undervalued and overvalued pockets of the market has facilitated a portfolio that trades at a large valuation discount to the market, in our view, without assuming undue risk. The portfolio trades at 8.6x normal earnings compared to 14.8x for the Russell 1000 Value Index and 24.4x for the Russell 1000 Growth Index. It trades at 1.5x book value compared to 2.1x and 6.9x for the value and growth indices, respectively. This valuation discount combined with healthy balance sheets and good underlying businesses has us confident about the portfolio’s prospects as we look forward.

Fund

The portfolio outperformed the Russell 1000 Value Index in the second quarter of 2019. The overweight position and positive stock selection in financials was the largest positive contributor during the quarter. Positive stock selection in consumer discretionary, consumer staples, and technology also helped performance. The overweight position and stock selection in energy was the largest performance detractor in the quarter, along with stock selection in materials and healthcare. The largest positive contributors to relative performance in the quarter were AIG, Adient, Microsoft, Citigroup, and Discovery; the largest detractors were Apache, Marathon Oil, State Street, National Oilwell Varco, and Murphy Oil.


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