A Diversified Large-Cap Strategy with a Focus in Earnings: A Wall Street Transcript Interview with James N. Nelson III, an Associate Portfolio Manager at Herndon Capital Management on the Large Cap Growth Strategy

Wall Street Transcript

67 WALL STREET, New York - November 27, 2013 - The Wall Street Transcript has just published its current Investing Strategies Report. This special feature contains expert industry commentary through in-depth interviews with highly experienced Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Large-Cap, Deep-Value - Bottom-Up Stock Selection - Repurchase Activity - Value Oriented Strategy - Investment Risk Management Strategies - High-Quality Blue-Chip Companies - Free Cash Flow Yield - Alternative Investing, Ultimate Returns

Companies include: Celgene Corporation (CELG), Hershey Co. (HSY), Amazon.com Inc. (AMZN), Ford Motor Co. (F), Herbalife Ltd. (HLF), Philip Morris International, I (PM), Coach Inc. (COH) and many others.

In the following excerpt from the Investing Strategies Report, an experienced portfolio manager discusses his Growth Stock investing methodology and current top picks:

TWST: How would you describe your investment philosophy for your large-cap growth strategy, and what are some aspects that make it unique?

Mr. Nelson: The philosophy simply is, when approached correctly, earnings growth can create a compelling investment opportunity in all market environments. We believe earnings are the key driver of performance over time. Generally, growth managers fall into the consistent grower or momentum grower camp. We don't believe that one camp will reign over the other over a period of time.

Drake and I both have experienced environments where various flavors of growth managers rule the day. We were investing in the 1990s when managers leveraged to higher-growth momentum stocks flourished, and during the bursting of the tech bubble and more recently, during the Great Recession, when more conservative growth managers outperformed.

With that experience as a backdrop and a desire to meet our clients' performance objectives regardless of the environment, Drake conceived a large-cap growth strategy that was very different from the traditional GARP and momentum strategies. He conceived a strategy that has the opportunity to flourish in all environments, so by design, we own very different kinds of growth names in our portfolio.

For example, right now, we own Amazon (AMZN) and Ford (F), Herbalife (HLF) and Philip Morris (PM), which are consumer discretionary and staples holdings, all potential opportunities based on our investment process, but they are different kinds of opportunities. We believe we can consistently outperform the benchmark going forward by building a portfolio that does not arbitrarily emphasize one type of earnings growth over another. Accordingly, we expect our broader, more diversified approach to serve our investors very well over a longer period of time.

TWST: Even though you use a bottom-up approach, your large-cap growth strategy is "diversified discretely by sector." Can you elaborate about how you take sectors into account, and what your current sector allocation is?

Mr. Nelson: The weighting of every sector in our portfolio, be it over, under or inline, is based on our unique sector-allocation process. Our primary goal is to position our clients' portfolios in a manner that would, over time, increase their odds of outperforming the benchmark. Unlike managers that attempt to do this by investing based on macroeconomic themes, our focus begins at the company level.

In the initial stages of our investment process, we rank all the names in our investible universe based on five micro company-specific factors. The five factors that we use are...

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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