Download all cap equity - Eagle Asset Management

ALL CAP EQUITY
Second Quarter | 2016
EAGLE ALL CAP EQUITY
Top 10 Holdings
Eagle’s All Cap Equity investment process centers on Value and
Reasonable Growth, a classic value style with a quality bias. We avoid
companies that we consider to be “deep value” — cheap stocks
with poor fundamentals — as well as “relative value” — high-quality
Aetna
4.41%
Microsoft
4.37%
Honeywell International
4.02%
St. Jude Medical
3.93%
Procter & Gamble
3.70%
Features
MEDNAX
3.54%
II Equity objective offering all-cap value stocks
Omnicom Group
3.50%
II Capitalization range: generally greater than $100 million
AT&T
3.36%
Capital One Financial
3.27%
Ingersoll-Rand
3.19%
Total % in top 10 holdings
37.28%
Portfolio
Index*
14.52x
16.55x
Price
Earnings/Growth1
1.52x
1.82x
Price/Book1
2.31x
2.59x
Price/Sales1
1.81x
1.76x
Price/Cash Flow1
9.94x
10.85x
Long-term EPS
Growth Estimate2
6.76%
10.43%
42.01%
42.42%
Long-term
Debt/Capital2
Dividend Yield
II Weighted-average (dollar-weighted) market cap: $86.98 billion
Investment Process1
Our investable universe consists of companies in the Russell 3000 Index with market caps greater
than $100 million. We narrow the initial universe using valuation-driven criteria, and use qualitativedriven criteria to narrow our focus further. Value opportunities are created when multiple negative
Statistical Information
Forward
Price/Earnings1
companies that are excessively priced.
factors center on a single stock. We look for companies that are misjudged whose future prospects
are not widely or accurately recognized, oversold companies whose stock has overreacted to news or a
temporary disruption in earnings potential, and unpopular companies whose industry, sector or the
company itself has fallen out of favor. The result is a welldiversified portfolio of 30 to 50 stocks with a portfolio beta below or equal to that of the Russell 3000
Value Index.
Investment Tenets
II Value and Reasonable Growth (VARG)
II Opportunistic: Misjudged, unpopular or oversold
II Well-defined catalyst: Quality companies with a clear path to unlocking intrinsic value
2.00%
2.11%
II Knowledge-driven: Bottom-up, fundamental, replicable research drives process
12.77%
8.47%
II Adaptable: Flexible stock- and sector-oriented approach
Median
market cap
$29.69B
$1.35B
Wtd. average
market cap
$86.98B $106.39B
Return on Equity3
II Collaborative: Team approach, daily interaction, sector specialists, consensus decision-making
Typical number
of positions
30-50
Annual portfolio
turnover
Generally
below 35%
Risk Management
II “What we don’t own is just as important as what we do own.”
II A bias toward quality
II Avoid “value traps”
II Sector weights generally within 10 percentage points of the benchmark
II Thorough investment thesis with value targets
II Focus on quality metrics
Managers:
Ed Cowart, CFA
David Blount, CFA, CPA
Harald Hvideberg, CFA
II Daily meetings to monitor/review sectors and stocks and weekly strategy and risk meetings
II Formal weekly attribution of portfolio returns
II Systematic review process for adherence to client guidelines
Sell Discipline
II Company or industry fundamentals deteriorate or a significant change in competitive
*Russell 3000 Index
1
2
3
Weighted harmonic average
Weighted average
Median
landscape occurs
II Price appreciation to a level where valuation case can no longer be made
II Position size (5%) or industry weighting (25%) becomes too large relative to portfolio
II Shift in investor base to momentum-oriented managers
II New investment idea is relatively more attractive
Performance2 as of June 30, 2016
Second
Quarter
Year to
Date
One
Year
Three
Years
Five
Years
Since Inception
(Oct. 1, 1999)
Eagle All Cap Equity
Gross
2.12%
1.13%
-5.41%
6.33%
10.74%
8.68%
Eagle All Cap Equity
Net
1.20%
-0.29%
-7.58%
4.59%
8.96%
6.85%
Russell 3000 Index
2.63%
3.62%
2.14%
11.13%
11.60%
5.50%
Russell 3000 Value Index
4.57%
6.29%
2.42%
9.58%
11.09%
6.57%
The performance data quoted represents past performance. Past performance does not guarantee future results. Investment return and principal value will fluctuate so that an investor’s portfolio, when redeemed,
may be worth more or less than their original cost. Current performance may be lower or higher than the performance information quoted. To obtain current month-end performance information, please call your
financial advisor or visit eagleasset.com.
Trailing Standard Deviation as of June 30, 2016
One
Year
Three
Years
Five
Years
Since Inception
(Oct. 1, 1999)
Eagle All Cap Equity
Gross
14.32%
10.84%
15.49%
16.69%
Eagle All Cap Equity
Net
14.10%
10.89%
15.53%
16.67%
Russell 3000 Index
11.43%
8.72%
13.34%
17.25%
Russell 3000 Value Index
12.88%
9.25%
13.95%
16.74%
Source: Callan; standard deviation is not statistically relevant for periods less than three years
Manager Outlook
Even though Britain’s vote to leave the European Union (EU) could lead to some near-term economic headwind in Europe, we believe
the global economy will maintain its forward momentum. Nearly 80 percent of individual countries’ manufacturing surveys around
the world indicate that their economies ended the quarter in “expansion” territory: the best reading in two years. In the United States,
regional economic indicators have been improving for the past few months. We believe the U.S. economy will continue to chug along at a
moderate pace this year and we do not see a recession on the horizon. We expect consumer spending to remain healthy due to continued
job growth, relatively low oil prices and a pickup in manufacturing activity. Despite the potential for an additional modest increase in
short-term rates from the U.S. Federal Reserve later this year, long-term interest rates probably will remain relatively low due to dormant
inflation and incredibly low global bond yields.
We believe corporate earnings will return to growth in the second half of 2016. The U.S. dollar has stopped appreciating, which should
have a positive impact on reported earnings growth for U.S. multinational companies; further, we expect that the recovery in oil prices
will lessen the earnings headwind from the energy sector. We believe the market is currently fairly valued and stocks look particularly
attractive when compared to fixed-income alternatives. More than 300 stocks in the S&P 500 Index now pay a higher yield than that of
the 10-year U.S. Treasury bond: a record high number.
The positives in the market and economy are encouraging but we remain mindful of potential headwinds, which include post-Brexit
uncertainty, political uncertainty, weakening banks in Europe, negative interest rates and the notion of central banks running out of
strategies to deal with flagging economies. Weighing the data, we believe the most probable scenario for the U.S. economy is that it will
maintain its slow, but sustainable, growth.
We believe that February marked an important inflection point for the U.S. market. Amid concerns about recession, Federal Reserve
policy, the strong U.S. dollar, weakening credit conditions and plunging oil prices, the market found a bottom and reversed strongly to
the upside. Those concerns have been ameliorated to some degree in the subsequent five months. Recession fears have mostly vanished,
Federal Reserve policy has been rationalized, the dollar seems to have found a level, oil prices have rallied and credit has shown a
remarkable improvement. At the same time, the domination of that handful of richly valued “momentum” stocks that had led the market
for nearly two years has been broken. During that period, the average stock did much worse than the stock-market averages. That has
been reversed since February. The average stock is now outperforming the stock-market averages. We believe this can persist for the
foreseeable future and it bodes well for stock-picking strategies such as ours.
For more information, visit eagleasset.com
Not every investment opportunity will meet all of the stringent investment criteria mentioned to the same degree. Trade-offs must be made, which is where experience
and judgment play a key role. Accounts are invested at the discretion of the portfolio manager and may take up to 60 days to become fully invested.
1
2
Performance Disclosures
The calculation of the performance data includes reinvestment of all income and gains and is depicted on a time-weighted and size-weighted average for the entire
period. Performance is shown after deduction of transaction costs and both “gross” (before the deduction of management fees) and “net” (after the deduction of
management fees). Performance figures include all internal, retail All Cap Equity accounts of Eagle Asset Management, a St. Petersburg, Florida-based firm. All
composite performance data through 2015 have been verified by an internationally recognized accounting firm. Performance data for the current year have not been
audited and subject to revision. No inference should be drawn by present or prospective clients that managed accounts will achieve similar investment performance in
the future. Past performance does not guarantee future results. Because accounts are individually managed, returns for separate accounts may be higher or lower than
the average performance stated in the charts. Investing in equities may result in a loss of capital.
Descriptions and Definitions
The Russell 3000 Index measures the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equity market. The
Russell 3000 Index is constructed to provide a comprehensive, unbiased and stable barometer of the broad market and is completely reconstituted annually to ensure
new and growing equities are reflected.
The Russell 3000 Value Index measures the performance of the broad value segment of U.S. equity value universe. It includes those Russell 3000 companies with
lower price-to-book ratios and lower forecasted growth values. Index returns do not reflect the deduction of fees, trading costs or other expenses. The index is referred
to for comparative purposes only and the composition of an index is different from the composition of the accounts included in the performance shown. Indices are
unmanaged and one cannot invest directly in the index.
Standard Deviation – Standard Deviation is a measure of the dispersal or uncertainty in a random variable. For example, if a financial variable is highly volatile, it has a
high Standard Deviation. Standard Deviation is frequently used as a measure of the volatility of a random financial variable.
Risks Associated with All Cap Equity Investing
The risks associated with Value investing are based on the potential for a company’s stock price to rise based upon anticipated changes in the market or within the
company itself. As with all equity investing, there is the risk that a company will not achieve its expected earnings results, or that an unexpected change in the market
or within the company will occur, both of which may adversely affect investment results. Of course, other factors relating to a company or to general market conditions
may also contribute to price declines. Value stocks have historically been sensitive to economic cycles and investor sentiment that can affect volatility and risk. As with
all equity investing, there is the risk that a company will not achieve its expected earnings results, or that an unexpected change in the market or within the company will
occur, both of which may adversely affect investment results. The biggest risk of equity investing is that returns can fluctuate and investors can lose money. Not every
investment opportunity will meet all of the stringent investment criteria mentioned to the same degree.
eagleasset.com
880 Carillon Parkway | St. Petersburg, FL 33716 | 727.573.2453 | 800.237.3101
Not FDIC Insured
May Lose Value
© 2016, Eagle Asset Management, Inc. All rights reserved. E9074-7/16 Exp. 11/15/16
No Bank Guarantee