Alma Hotchkis & Wiley US Large Cap Value Equity Fund
- 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.
Cumulative Performance (%)
Fund Inception 6 August 2014
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
Investment objective: 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 $3 billion
- Investment strategy mirrors the Large Cap Fundamental Value strategy managed by the Investment manager since 1980
Hotchkis & Wiley is a SEC-regulated, Los Angeles-based investment adviser founded in 1980, specialised in value equity and high yield bond strategies
- Employee owned firm: 90% of the investment team and 67% of all employees own equity
- Investment team has over 23 years average investment experience and 15 years average tenure at Hotchkis & Wiley
- George Davis, the CEO of Hotchkis & Wiley and senior portfolio manager of the fund, has over 30 years of investment experience.
- Hotchkis & Wiley manages $26 billion
George Davis, Jr. CEO, Portfolio Manager and Principal
George Davis serves as CEO and is responsible for setting the firm’s strategic direction. Mr. Davis also serves as a portfolio manager on the Large Cap Fundamental Value and Large Cap Diversified Value portfolios. He is a member of the capital goods and financials sector teams. Prior to joining Hotchkis & Wiley in 1988, 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
Scott McBride is President of Hotchkis & Wiley and serves as a portfolio manager on the Large Cap Fundamental Value, Large Cap Diversified Value and Global Value portfolios. He covers technology companies and is a member of the consumer, technology, healthcare and financial sector teams. Prior to joining the firm in 2002, Mr. McBride was an associate consultant with Deloitte Consulting and worked as an investment marketing analyst with Fidelity Investments. Mr. McBride, a CFA charterholder, received his BA in Economics from Georgetown University and MBA from Columbia University.
Patrick Meegan, CPA Portfolio Manager
Patrick Meegan serves as a portfolio manager on the High Yield portfolios. He is a member of the financials and healthcare sector teams. 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 from California State University, Fullerton and his MBA from the Anderson School of Management at the University of California, Los Angeles.
Patty McKenna, CFA Portfolio Manager and Principal
Patty McKenna serves as a portfolio manager on the Large Cap Fundamental Value and Large Cap Diversified Value portfolios. She covers consumer companies and is a member of the consumer and healthcare sector teams. 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 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. Ms. McKenna, a CFA charterholder, received her BA in Economics from Stanford University and MBA from Harvard Business School.
Judd Peters, CFA Portfolio Manager
Judd Peters serves as a portfolio manager on the Large Cap Fundamental Value, Large Cap Diversified Value and Small Cap Diversified Value portfolios. He covers utilities companies and is a member of the capital goods, energy and technology sector teams. Prior to joining the firm, Mr. Peters was an analyst in the investment banking division of Wedbush Morgan Securities. Mr. Peters, a CFA charterholder, received his BA in Mathematics and a BS in Biochemistry from University of California, San Diego.
Statistics & Commentary
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 a % of AUM
as a % of AUM
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Top 10 Position Details
Investment Manager's Commentaryas of 29/05/2020
Market Review and Outlook
The S&P 500 Index returned +8.9% in the third quarter of 2020 and is now in positive territory year-to-date (+5.6%). Two-thirds of S&P 500 companies beat consensus revenue expectations and 85% exceeded earnings expectations. Corporate America’s strong showing trumped continued worries about the prevalence of COVID-19 and Congress’ stalemate over a new stimulus package. Meanwhile, the Fed continues to signal easy monetary policy for the foreseeable future, maintaining a subdued economic outlook. COVID-19 cases reaccelerated for the first time in months, but hospitalizations and deaths remained downward trending—there was a large jump in tests administered which could explain the mixed developments.
Growth outperformed value across geographies and across market capitalizations. Based on information from the Kenneth French/Dartmouth data library, value has underperformed growth over the last 10 years by the largest magnitude on record. Also, for the first time in the nearly 100-year old dataset, growth has outperformed value over a 20-year period. This has led to a colossal divergence in valuations. Apple, for example, is a very good business, with a great balance sheet, an iconic brand, and a loyal customer base. For half the price of Apple, however, you could buy all the banks in the S&P 500. The bank group (again, at half the price) generated more than twice the revenue and twice the earnings of Apple. For the price of Tesla, you could buy the next four largest global auto manufacturers and have money left over. Tesla generated revenue last year of $25 billion and the other four autos generated revenue of $743 billion; Tesla’s earnings were negative while the other four autos generated $38 billion in earnings. $38 billion in earnings compared to $25 billion in revenue seems like a better option at the same price, let alone a discount.
Perhaps more important to our client base than the value-growth dichotomy is the equally noteworthy divergence within value, both in terms of trailing performance and future opportunity. The strongest performers within value have been concentrated in market segments with low correlations to economic growth, like healthcare and consumer staples. The weakest performers within value have been concentrated in market segments where near-term forward earnings estimates have declined meaningfully, in some cases by 30% or more. Financials, energy, and cyclical industrials comprise a disproportionate share of these examples. The positions we have in these areas have underperformed, though we view the forthcoming earnings declines as temporary. A year or two of depressed earnings reduces our intrinsic value estimate, but this impairment of value is certainly not commensurate with actual share price declines. We are unwilling to take meaningful balance sheet risk because a weak balance sheet can significantly impair capital via shareholder dilution or worse. This steadfast risk aversion allows us to tolerate temporary earnings volatility and take advantage when market values decline more than intrinsic values. We remain selective, however, and recognize that certain market segments and/or individual companies may not recover—we look to avoid businesses with uncertain long-term outlooks or insurmountable secular pressures.
Financials represent the portfolio’s largest absolute weight, largest relative weight, and largest detractor to relative performance. Banks represent the portfolio’s largest exposure within financials. Earnings estimates have declined due to the combination of increased loan loss provisions, a ban on share repurchases, slower asset growth, and lower interest rates. Accounting rules require banks to estimate loan losses upfront based on prevailing economic conditions. The substantial provisions taken during the first half of 2020 could end up being too high considering the severity of the economic outlook at the time. Banks’ balance sheets were quite healthy entering 2020, as substantial capital had been built in the previous decade. The provisions already taken combined with the excess capital—not to mention the pre-provision income being generated—provides a meaningful cushion to absorb elevated credit losses. Further, banks’ business models are less interest rate sensitive than generally believed. The large money center banks have diverse revenue streams, some of which have little/no interest rate sensitivity. For less-diversified banks, the net interest margin is more closely tied to the yield spread earned on loans than it is from the rate sensitive benefit they get from funding a portion of their earning assets with non-interest bearing liabilities. The banks’ benefit of free funding dissipates as rates decline, but the yield spread on loans exhibits countercyclical traits (i.e. the yield spread often widens when rates decline as banks tighten lending standards). This has resulted in relatively stable net interest margins over the past decade despite persistently falling interest rates over that period.
The dichotomy between growth and value is significant and pervasive, but so too are the opportunities within value. The portfolio’s active share relative to the value benchmark is at its highest level in at least a decade, and our valuation discount to the value benchmark is near record levels. This reflects our conviction that select opportunities are exceptionally attractive. The recent environment has not been conducive to our approach, but we are confident that patient investors will be rewarded by the rarely observed risk-adjusted potential of the current portfolio.
Attribution: 3Q 2020
The portfolio underperformed the Russell 1000 Value Index in the third quarter of 2020. The portfolio’s value-focused approach hurt relative performance as the most deeply discounted stocks underperformed. For example, index stocks trading at a discount to book value lagged the overall index by about 10 percentage points in the quarter; the portfolio had about one-third of the portfolio invested in such stocks compared to just 10 percent for the Russell 1000 Value. Stock selection in financials, along with the overweight allocation and stock selection in energy detracted from performance. Positive stock selection in technology and industrials helped. The largest detractors to relative performance in the quarter were AIG, Citigroup, General Electric, National Oilwell Varco, and Hess; the largest positive contributors were FedEx, Cummins, Corning, General Motors, and TE Connectivity.
Largest New Purchases: 3Q 2020
Baker Hughes is one of the largest oilfield services companies and has expertise in gas turbines and industrial digital solutions. The combined impact of COVID-19 on demand and the Saudi/Russian surge in production have created severe dislocations throughout energy markets. Given Baker Hughes’ investment grade balance sheet, strong liquidity position, and technological expertise, it is well positioned to weather the cycle while providing upside in an eventual recovery. Baker Hughes trades at a low multiple of normal earnings considering the size and quality its businesses.
Facts & Documents
Fund Domicile: Luxembourg
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, Patty McKenna, Patrick Meegan, Judd Peters
Countries where the fund is registered:
France, Germany, Luxembourg, Switzerland, United Kingdom, Austria
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
available upon request