67 WALL STREET, New York - May 31, 2013 - The Wall Street Transcript has just published its Multicap Value Investing Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
Topics covered: Investing in Financial Services - Large Cap Investing - Value Investing - High Quality Companies - Bottom-up Investing - All-Cap Growth Investing
Companies include: Citigroup, Inc. (C), Bank of America Corporation (BAC), JPMorgan Chase & Co. (JPM), Aetna Inc. (AET), Tyco Electronics, Ltd. (TEL), Molex Inc. (MOLX), Amphenol Corporation (APH) and many more.
In the following excerpt from the Multicap Value Investing Report, an expert portfolio manager discusses his portfolio-construction methodology and his investment philosophy:
TWST: As of March 31, insurance and credit made up about 29.2% of your portfolio. Why was that?
Mr. Harvey: We typically will limit our exposure in a sector to about 25% of the portfolio, and so if you look at financials, we've got six investments in financials. We've got three big banks, Citi (C), Bank of America (BAC) and JPMorgan (JPM), and three insurance companies.
They're all high-quality, and at the time of purchase, we had six investments that were 4% each. That's where we stop. Financial service companies have done quite well, so that weighting has drifted up as those stocks have worked, and that's why you can get numbers above 25. But those were all company-specific stories, not sector stories. We do believe that interest rates are unsustainably low.
When you can find an area like that, where you say, "OK, why are we getting this opportunity?" There were company-specific factors with each of the companies we invested in, and it was in an investment backdrop where the market seems to be pricing things as if interest rates are going to stay low indefinitely. We don't think that's the case, and so that's a nice tailwind for those investments. We were about a year too early getting in, but the last 18 months have been very profitable in that area.
TWST: You mentioned one of your larger holdings as of that time was Aetna. Why do you like that company, and does it meet all those parameters we talked about earlier?
Mr. Harvey: It met the other parameters when we invested. Aetna (AET) is an interesting story. We have owned it for a few years, and there was a period where they were out trying to grow and take market share. In doing so, especially in businesses like that, sometimes if you take market share, you're doing it because you mispriced the business. They had big chunks of business that they had underpriced. When we looked at it we said, "OK, the opportunity here is, they've grown too fast, they've underpriced business; the results are depressed as a result. As they reprice that and rework their book, margins should improve." And they have. So that has been working quite well. That's why we 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.