67 WALL STREET, New York - January 6, 2014 - The Wall Street Transcript has just published its current Value Investing and Other 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: Small Cap Investing - Contrarian Approach to Investing - Quality of Business - Value Oriented Strategy - High-Quality Companies - Long-Term Intrinsic Value - Asset-Heavy Companies - Multicap Contrarian Investing
Companies include: Starbucks Corp. (SBUX), Monsanto Co. (MON) and many others.
In the following excerpt from the Value Investing and Other Strategies Report, an expert portfolio manager discusses his methodology and top picks for investors in 2014:
TWST: Could you please start with an overview of the American Beacon SGA Global Growth Fund and a look at what your portfolio management team is like?
Mr. Fraise: The American Beacon SGA Global Growth Fund is a fund that invests in companies that have the rare combination of high quality and strong growth. It is managed by Sustainable Growth Advisers, a firm that I founded with two partners and long-time friends, Gordon Marchand and Rob Rohn, back in 2003.
The philosophy of the organization that applies to the American Beacon SGA Global Growth Fund is that one of the great ways to generate excess returns while incurring a lower level of risk is to invest only in those few businesses that have a certain set of characteristics that we believe can lead to predictable, sustainable growth over the long term. This entails a rare combination of high quality and strong growth. And we simply won't compromise on either of those two variables. Without high quality, you have too high risk of capital destruction; and without strong growth, you simply can't get the compounding that's necessary to offset your retirement liabilities if you are an individual or meet the return assumptions that were built into your pension plan if you are an institution.
So what we do, we have a team of seven research analysts, first and foremost, that look for companies regardless of geographic domicile that have characteristics that our experience has shown lead to highly predictable, highly sustainable above-average rates of growth and also have a very high-quality profile. Once we've identified these businesses, we build portfolios of a selective number of companies, 25 to 35 companies, in order to allow our best ideas to meaningfully impact results. We're also benchmark-indifferent, meaning that we put together portfolios so that we invest based on opportunities, not on what is - or is not - in a particular benchmark.
We also look very carefully at valuation. We are a true growth manager, yet we believe that once we've identified great businesses you have to make sure you don't blow it all by overpaying for them. So we pay a lot of attention to valuation, particularly cash-flow-based valuation, and we look at valuation from an owner's perspective.
The only other thing I would add is that we are long-term investors, so we're a little bit different than many growth managers in that we hold companies on average for three to five years. So if you think about how we're different, how the American Beacon SGA Global Growth Fund is different from other global funds out there, the first thing I would say is it's much more selective, it has 25 to 35 companies instead of the many hundreds of companies that you often find in a global fund. It's very benchmark-indifferent, it is built bottom-up with a real focus on both growth and quality, and then it has a much lower turnover than the average global fund out there.
TWST: Are there any specific stocks or any of your holdings that you feel best exemplify the fund's investment approach or its valuation techniques?
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.