Sterling Capital Equity Income Fund Ranks in the 1st Percentile of Morningstar Category
Sterling Capital Management LLC announced today that its Equity Income mutual fund, BEGIX, ranked in the 1st percentile based on total return among 442 funds in its Morningstar Large-Cap Value category for the 15-year period ending June 30, 2019.View PDF
The Lead - "What’s Working"
- Expensive stocks are outperforming by a wide margin in 2019, and they are not necessarily the hot initial public offerings
- With global interest rates making historic lows, low growth bond like stocks with consistent cash flows and growth stocks with visible long term cash flows are among the best performing groups as traditional valuation models are put to the test
- While a case can be made for growth stocks, it is tougher for their low growth, high flying counterparts
- Our team actively shares insights among each other to help understand the investing backdrop to generate excess returns for clients
ESG: From Niche to Mainstream
Once considered a niche market for institutional investors, environmental, social and governance (ESG) investing has gone mainstream. What exactly is ESG investing? Also called sustainable investing, the most commonly used definition is, “an approach to investing that aims to incorporate environmental, social and governance factors into investment decisions, to better manage risk and generate sustainable, long-term returns.”View PDF
The Lead - "Setting Expectations"
- One of our favorite graphics is the emoji guide to investing that can be used for not only the stock market but can also be applied to individual stocks.
- While sentiment around the market or an individual stock can follow a wave of emotions, our edge is seeking to keep a level head (bottom graphic) and buy when others are in the red or green stage.
- As famed investor Warren Buffett noted in his 1961 partnership letter of these new positions, “sometimes these work out very fast; many times they take years.”
- We note that in our portfolios, recent purchases can show “mixed results” while stocks held for years can become strong performers as they move from pessimism to performance to realizing their potential.
Sterling Capital Equity Income Fund Ranks in Top 1% of Lipper Peers
Sterling Capital Management LLC (Sterling Capital) announced today that its Equity Income mutual fund (the Fund) ranked in the top 1% among 467 of its Lipper peers based on total return for the three-year period ended December 31, 2018, for its institutional-class I shares (BEGIX), providing an 11.59% return per year versus a category average of 6.88% per year.View PDF
The Lead - "It Doesn’t Get Much Better Than This"
- Now that we have broken the record for the longest economic expansion in U.S. history, how should a vigilant investor position their portfolio?
- Historically, investing in quality companies has provided better returns in a slowing macroeconomic environment according to Merrill Lynch’s analysis of stock performance (as shown in the chart on page one).
- A case has been made for paying higher valuations for a combination of above average returns and growth, we provide a framework but look for these stock characteristics…at the right price.
The Lead - "Conference Heroes"
- June represents one of our favorite times of the year - when the earnings season ends and we are able to get out and visit companies.
- Not all stock returns are created equal and typically a small number of stocks can generate outsized returns while the majority of stocks underperform.
- When working an investment conference, we are on a search for unique, attractive business models with the potential for 50-100% upside typically over the next 3-5 years.
- This week members of the team are at a number of investor days and conferences such as William Blair that have yielded several “conference heroes” over the years that we highlight.
The Lead - "Women in Finance"
- A Bloomberg study shows female CEOs produce value for shareholders and we highlight three of our investments run by female CEOs.
- These CEOs share similar leadership qualities we find compelling.
- We put our money to work with leaders with a vision, provide hints of success along the journey, and highlight their results for our clients.
The Lead - "Value Extremes"
- Value investors have been waiting as long as our beloved Virginia Cavaliers to get back in the spotlight.
- Growth stocks outperformance since 2007 has been historic, but a longer term view shows value stocks should not be counted out.
- In our Equity Income strategy, we’ve been attracted to compelling valuations with attractive and rapidly growing dividends.
The Lead - "Purpose and Performance"
- As socially responsible investing, or ESG (Environmental, Social, and Corporate Governance) continues to gain acceptance, the search for fully defining the approach and any source of outperformance continues.
- This month, we find that another research tool, Glassdoor, has been identified by Bank of America’s quantitative group as not only producing outperformance but also fits into their evolving ESG framework.
- We have used Glassdoor reviews for years as part of our research process with the view that motivated employees should perform at a higher level. Bank of America’s work has now quantified the positive impact this tool provides, as seen in the chart above, to help generate both purpose and performance for client accounts.
The Lead - "Setting the Angel Free"
- We see the passive index as the unhewn slab of marble, and we chip away and eliminate portions in our quest to create a masterpiece.
- Why not employ an active investment process that focuses on companies that earn a profit, have management aligned with shareholders, have the ability to grow a dividend, are taking market share and buy them at compelling valuations in a stock market where returns are not normally distributed?
- Why own segments of an index that lack these characteristics when they can chisel away and own stock characteristics that have a history of outperforming the market?
Associate Spotlight - Colin Ducharme
Executive Director and Portfolio Manager Colin Ducharme is highlighted in the January 2019 Sterling Associate Spotlight. Colin shares insights about himself, tips for working in the industry, and his self-proclaimed 'geekiness!'View PDF
The Lead - "What Worked in 2018? Quality?"
- Asset allocators and advisors perform an important job selecting investment managers who adhere to a specific style, in part because they can have an expectation of how their portfolio should perform in different environments.
- Quality as a characteristic worked across geographies in the challenging month of December and in 2018.
- Owning quality companies is one of the four pillars of the Equities Opportunities group and integral to the selection process for new positions.
Associate Spotlight - Lynne Cannon
Sterling's Associate Spotlight for December 2018 features Lynne Cannon, Director & Compliance Officer. Lynne details why she loves working at Sterling, her love for animals and her favorite place she has traveled. Read more about Lynne in her Q&A.View PDF
The Lead - "ESG in the Secret Sauce"
The preference for ESG (Environmental, Social, and Corporate Governance) investing continues to be reinforced through recent studies like the one above.
Forbes recently noted that “there are 150 different reporting metric systems in place, with none being the overwhelming framework or rating system of choice.”
Empirical Research’s work notes that, “companies with favorable ESG credentials tend to have predictable and higher quality earnings, are lightly shorted, have lower capital intensity, return capital to shareholders whenever they can, and generally trade at lower multiples.” These characteristics are consistent with our investment pillars.
While some investors have laudable goals to change the world, we see ESG investing as investing and use a recent stock purchase as an example.
Associate Spotlight - Mary Weeks Fountain
Sterling’s Associate Spotlight for November 2018 features Mary Weeks Fountain, Managing Director & Senior Portfolio Manager on our Private Client Team. A long-standing Sterling associate, Mary Weeks has been a with the firm for over 30 years. Read more about her in her Q&A.View PDF
The Lead - "Winner Takes All"
- One of our primary investment tenets is investing in companies with exceptional returns on capital.
- A McKinsey Consulting study released this month highlighted that of the 6,000 companies with $1 billion or more in revenue, the top 10% capture 80% of the economic profits, the middle 80% essentially zero, and the bottom 10% destroy value.
- Equity Opportunity Group portfolios tend to have concentrations in sectors that have proved to be fertile areas of economic value creation.
Associate Spotlight - Tim Beyer
The Sterling Associate Spotlight for October features Tim Beyer, Managing Director & Portfolio Manager. Read more about Tim’s passion for working in asset management and what sparked his interest in the industry at a young age.View PDF
The Lead - "Defining Quality"
- As active managers we have heated debates on portfolio holdings, the most recent was on whether a security was a “quality” company.
- While quantitative metrics can try to measure quality, we believe there are shortcoming in merely screening for quality and “setting and forgetting." We highlight former holding General Electric as an example.
- We find having generalists with different perspectives but aligned goals helps in our pursuit of generating above average returns with below average risk.