Value Identification and Stock Selection Utilizing Behavioral Finance: An Exclusive Interview with the Portfolio Manager for the Stephens Small Cap Growth Fund and the Stephens Mid Cap Growth Fund

Wall Street Transcript

67 WALL STREET, New York - March 18, 2014 - 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: Secular Growth Themes - Small Cap Investing - Upside in Small-Cap Stocks - Value Investment - Balanced Investment Approach - Global Growth Equities - All-Cap Investing - Value and Growth Investing

Companies include: Illumina Inc. (ILMN), Stericycle Inc. (SRCL) and many others.

In the following excerpt from the Investing Strategies Report, an experienced portfolio manager discusses his investing methodology and top long term stock picks for investors:

TWST: Could you begin with an overview of the fund and your investment approach?

Mr. Crane: We always try to think about how we differentiate ourselves - one, versus competition, our peers, other midcap managers - and also versus passive strategies that clearly are an option for investors nowadays, like ETFs. So we strive to do something different and to build a case where we can add alpha over time. Beyond that, we're a fundamentally driven bottom-up manager.

We are big believers in growth, hence the name of the fund: American Beacon Stephens Mid Cap Growth Fund. We're always trying to find the fastest-growing, highest-quality companies in our investing universe. We do that through a very research-driven process of really getting to know each of these companies, really thoroughly understanding the business model and what the drivers are to the business model. We look at the catalyst; that is, what the engine of growth is for that company and how sustainable it is. So that's basically our process.

When I think what really differentiates us, the things that make us stand out, there are a couple of them: One is that we operate with a behavioral finance mindset. The field of behavioral finance has really grown quite a bit, and the awareness of this field study has also grown similarly in recent years. So 10 years ago when we talked about this, we were missionaries for the concept; today it's something of a buzzword, which is good for us because people understand what we are doing.

Behavioral finance is a field of study that is at the intersection of psychology and financial decision-making. As someone with an economics background, I've spent a lot of time thinking about the decision-making process of individuals and of our firm. You don't have to go very far to see that people don't always behave rationally on lots of different levels, so even when they have good information, they sometimes make bad decisions.

We know that smoking is bad for you, but people still continue to smoke. You know you should pay your taxes on time, but people don't always do that - so we can see that people don't act in a rational sense.

So when you look at this irrationality, or these imperfect, less-than-ideal decisions that investors make, there are really two sets of opportunities that this creates for us...

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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