67 WALL STREET, New York - January 24, 2014 - The Wall Street Transcript has just published its Value Investing and Other Strategies 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 public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
Topics covered: Small Cap Investing - Value Oriented Strategy - High-Quality Companies - Upside in Small-Cap Stocks - Bottom-Up Stock Selection - Portfolio Diversification with Closed-End Mutual Funds - High-Grade Fixed Income Securities - Sector Rotation Investing
Companies include: Nu Skin Enterprises Inc. (NUS), Herbalife Ltd. (HLF), American Equity Investment Lif (AEL), and other small cap value stocks.
In the following excerpt from the Value Investing and Other Strategies Report, an experienced portfolio manager discusses his stock picking methodology and favorites for 2014:
TWST: Could you please give us an overview of Transamerica Small Cap Value Fund?
Mr. Absler: The Transamerica Small Cap Value Fund is subadvised by Lombardia Capital Partners. The fund is managed by a team of five investment professionals, and together the five individuals have more than 100 years of investment experience. Al Marley is the senior member and leads the team. Along with Al Marley and myself, the team is rounded out by Fernando Inzunza, Steve Malcolm and James Veers.
We are truly team-managed, as each member analyzes companies to add to the portfolio and each is responsible for approximately 20% of the portfolio. It is a unique environment in which everyone understands their responsibilities and believes in the philosophy and process. Each member is responsible for certain industries within the 10 GICS sectors. We do not want anything to remain uncovered. For example, in a sector such as financials, which accounts for approximately 38% of the index, there are three team members responsible for analyzing all the stocks in that area.
Our benchmark is the Russell 2000 Value Index, and we want to consistently generate alpha via stock selection. More specifically we aim to outperform the index by at least 300 basis points over time. We believe the market's sometimes myopic focus on the near term and its inability to identify what a company can achieve in future provides us with opportunities to buy stocks. We define the future as three years out, and through fundamental bottom-up analysis we estimate what a company can earn in that third year.
Using a valuation model, we calculate an intrinsic value incorporating our third-year earnings estimate and applying a reasonable p/e multiple. This is the same model that Al Marley has used throughout his career, and it has consistently generated returns in excess of 300 basis points over the long term. We buy stocks that are trading below our calculated intrinsic value and that offer an annualized expected return of at least 12% at the time of purchase. Our companies tend to be trading below their historic price-to-earnings ratio.
We also like companies that have low levels of debt, strong cash flow and identifiable catalysts. I mentioned stock selection earlier, and that is of the utmost importance, because we avoid straying too far from the GICS sector weights. We believe strong fundamental analysis allows us to find good stocks in every sector, and we strive to find the best performing stock even if the sector is considered out of favor. In fact, we consistently maintain an allocation in excess of 30% in the financials, which is very attractive to investors, as many of our peers are dramatically underweight the financial sector.
TWST: What were your other sector weightings like in 2013?
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.