Opportunity Fund

Share Class Investor        Institutional
Ticker CAMOX        CAMWX
Inception Date 6.31.1998      11.2.2005
Minimum Investment       $2,500        $5 million

Cambiar Investors - 2016 Final Capital Gain Distributions

The Cambiar Opportunity Fund is a team-managed portfolio designed to capitalize on large cap investments.  The Fund is a natural extension of the Cambiar Large Cap Value portfolio, the firm's oldest strategy. 

The seven person domestic investment team conducts a rigorous internal research process to identify companies that we believe possess an attractive risk-return profile – where we are confident that the risk of capital loss is modest while the potential for outsized return is high.  

The outcome is a concentrated portfolio of established businesses that meet Cambiar’s four investment criteria: quality, valuations, value creation/catalyst and upside potential.

  • Bottom-up, relative value investment process that favors undervalued companies that possess a catalyst for future growth.
  • The Fund holds between 35-45 stocks.
  • The Fund may invest in derivatives.

Portfolio Manager

BrianB(2016) 

Brian M. Barish, CFA 

Analyst Meeting (2016)

Morningstar Rating™

The performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost and current performance may be lower or higher than the performance quoted. Investor Share Class: Expense ratio is 1.11% (gross); 1.05% (net). Institutional Share Class: Expense ratio is 0.86% (gross); 0.80% (net). Cambiar Investors, LLC has contractually agreed to reduce fees and reimburse expenses in order to keep net operating expenses from exceeding 0.80% of the average daily net assets of each of the Fund’s share classes until September 1, 2017. S&P 500 Index is an unmanaged index compiled by Standard & Poor’s Corp. Russell 1000® Value Index measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values. Index returns do not reflect any management fees, transaction costs or expenses. Individuals cannot invest directly in an Index. For performance data current to the most recent month-end, please call 1-866-777-8227.

Portfolio Profile (as of 12.31.2016)

Top 10 Holdings % Weight
Synchrony Financial 3.5
McKesson Corp 3.4
eBay 3.4
Royal Dutch Shell 3.3
BB&T  3.3
HP Inc 3.2
Bristol-Myer Squibb 3.2
Verizon 3.2
Oracle 3.2
Occidental Petroleum 3.2
% of Total 32.9
Holdings Subject to Change  
Attributes Cambiar  S&P 500 Russell 1000V
Price/Earnings F1Y 14.8 17.0 16.3
Price/Book 2.2 2.8 1.9
Debt/Equity  1.1 1.8 1.3
EPS Growth   8.5 10.2 7.5
Market Cap Wtd Avg 84.4 B 150.1 B 119.5 B
Market Cap Median 43.1 B 19.4 B 8.2 B
Active Share 88.2    
Sector Weights   Cambiar      S&P 500 Russell 1000V
Consumer Discretionary 5.9 12.1 4.5
Consumer Staples 6.1 9.3 8.0
Energy 11.4 7.5 13.6
Financials 25.3 14.9 26.8
Health Care 17.8 13.5 10.2
Industrials 7.3 10.3 10.0
Information Tech 19.4 20.7 9.4
Materials 0.0 2.8 2.8
Real Estate 0.0 2.8 4.6
Telecom Services 3.2 2.6 3.9
Utilities 0.0 3.1 6.0
Cash 3.4    
Risk Statistics* Cambiar S&P 500 Russell 1000V
Alpha -1.3 0.0 -0.1
Beta 1.0 1.0 1.0
R-Squared 85.5 100.0 94.1
Sharpe Ratio 0.7 0.8 0.8
Standard Deviation      12.1 10.7 10.9
*Three Year      

Commentary

Market Review (12.31.2016)

U.S. equities posted strong gains in the fourth quarter, capping an 8th consecutive year of positive returns for stocks (as measured by the S&P 500 Index). The fourth quarter brought with it new record highs for most market averages, as the outcome of the Presidential Election catalyzed investors into believing that a pro-business Trump administration will reverse the stagnant growth in the economy.  Small cap stocks outpaced their larger cap counterparts, given these companies’ home country revenue concentration and therefore less impact from a stronger dollar.  While in the aggregate stocks are beginning to approach more extended valuation levels, the current environment does not possess the investor euphoria that often presages the end of a stock market cycle.  That said, the next leg higher will likely be an earnings growth story, as multiple expansion has largely run its course.    

Active vs. Passive - Darkest Before Dawn?

2016 marked another year of asset rotation from active managers to passive investment vehicles.  The urge to index has become overwhelming, and it is hard to argue with its effectiveness in the current cycle. 

Not surprising, Cambiar is a proponent of active investing.  On an intuitive basis, the idea that qualified individuals making decisions about what companies may be good investments vs. companies to avoid because they are overpriced or engage in bad business practices just makes sense to us.  Part of the intrigue in active management is the price-discovery process.  Stocks can theoretically trade at any price that buyers or sellers choose to transact.  But in practice, if XYZ stock falls below a certain level, buyers tend to emerge and sellers tend to disappear.  That’s how price floors or ceilings emerge.  This process still holds true today, but the market ecology is much different.  Passive vehicles have no reactivity to the price-discovery process – they won’t buy more shares of XYZ however low the price might go. 

An underappreciated element to the current active/passive discussion is the cyclical nature of investing.  Think growth vs. value, domestic vs. international or small cap vs. large cap.  The same can be applied to active vs. passive.  The current run of passive has been longer than past cycles – that said, we believe the ultra-low interest rate environment that has been in place may be more than just coincidental on this front.

One metric that may begin to provide a tailwind to active management is a decrease in equity correlations.  According to Strategas, correlation among stocks in the S&P 500 Index fell to a 10-year low in December.  This environment should therefore place greater emphasis on security selection.  The walk back towards normal monetary policy is an additional consideration that is likely to produce a profound shift in relative winners and losers.  Companies that benefited from a low cost of capital may be challenged, while steepening yields would be unambiguously positive for financials yet a headwind for bond proxy sectors of the market.

All of the above may be interesting sound bites; however, performance is the key proof statement.  It will take sustained excess returns from active management to reverse (or perhaps slow) the flow to passive strategies.  Cambiar is encouraged by the improved returns we have achieved in recent quarters, but recognize that more follow-through is required on this front.  The table is set for active management – it is now time to deliver.

Opportunity Fund

The Cambiar Opportunity Fund closed out 2016 on a high note, as investors bid up stocks post the Presidential Election.  Cambiar was unable to create much separation from the Russell 1000 Value Index in the quarter; however, the portfolio outperformed the S&P 500 Index, and also ranked well vs. peers (based on Morningstar 4Q 2016 ranking).

In many respects, 2016 was a tale of two years, as the playbook to generating outperformance in the first half of the year (deflation trade – i.e., defense, staples, bond proxy stocks) gave way to a reflation trade (i.e., cyclicals) that began in July and accelerated into the end of the year.  Cambiar’s low allocation to defensive sectors of the market made for a difficult start to 2016; yet the team’s conviction and unwillingness to chase what had worked earlier in the year paid off in the third and fourth quarters.  Looking ahead, we believe the Opportunity Fund is well-positioned as we transition into 2017.

As discussed above, Cambiar believes the potential for active management to outperform increases in an environment where there is a wide range of returns across sectors and stocks; the fourth quarter was one such example of this type of market.  Sector performance (within the R1000V Index) for the quarter ranged from 22% for Financials to -5% for Healthcare…no shortage of dispersion in returns.  As opposed to a rising tide across all sectors where there is less opportunity for stock selection to add value, the current market offers an opportunity to outperform on two fronts - what you own, as well as what you avoid.

Breaking down performance drivers for the Fund in 4Q, Cambiar’s non-participation in two sectors (Real Estate and Utilities) positively contributed to performance, as both of these rate-sensitive sectors posted negative returns.  While Utilities are generally regarded as low beta investments due to their relatively predictable business models, this sector was a virtual poster child for volatility in 2016 – the top performing sector through June 30th, only to materially underperform in 3Q and 4Q as yields rose and assets rotated from defense to offense.  The net impact to the Opportunity Fund for the year was a small detractor from performance.     

The Fund also benefited from positive stock selection in the Industrials sector; this was true for the quarter as well as on a full year basis.  Given the low growth rates and high multiples assigned to many industrial companies, the strike zone for value managers in this sector has gotten considerably smaller relative to earlier in the cycle; this is somewhat reflected by the portfolio’s lower allocation (~7%).  That said, Cambiar has identified a select number of companies that offer attractive upside via a combination of improving volumes, stronger pricing and prudent expense management.

Representing approximately 24% of the Opportunity Fund, Financials comprise the largest sector in the Cambiar strategy.  The sector was the standout beneficiary of the “Trump Bump”, moving higher on the prospects of higher rates, the potential for regulatory/capital relief, and a lower corporate tax rate (with limited tax optimizing strategies, banks would be a big beneficiary on this front).  While recognizing that the sector has had a sizable move in a short period of time, a good portion of the 4Q rally was simply a function of “catch up”, given the negative sentiment toward financials in the first six months of the year.  It is Cambiar’s view that the portfolio’s various bank, insurance and credit card companies continue to offer attractive upside potential via a higher earnings trajectory, increased capital return and modest multiple expansion.

Although Cambiar’s Technology holdings were a positive contributor to performance for calendar year 2016, the sector was a drag on return in the quarter.  In aggregate, tech stocks were relatively flat for the quarter; thus Cambiar was negatively impacted by the portfolio’s overweight position as well as some modest declines amongst the portfolio’s tech holdings.  Cambiar’s higher allocation to Healthcare was an additional headwind in the quarter – as healthcare stocks pulled back on general uncertainty of the new Administration’s view toward drug prices and the future of the Affordable Care Act.

Looking Ahead

The fourth quarter concluded an impressive year of gains for U.S. equities: the S&P 500, Nasdaq Composite and Russell 2000 Index each notched all-time highs, and the Dow Jones Industrial Average closed in on the 20,000 milestone.  Consumer confidence is at the highest level since 2001, based on upbeat prospects for the economy, labor market and income growth.  At a high level, the market’s optimism appears warranted – lower corporate taxes, job growth and a less onerous regulatory environment are all positives.  Yet the road from here is likely to get a bit bumpier, as the timing and pace of implementation may fall short of expectations.  In aggregate, Cambiar is cautiously optimistic on the outlook for stocks; however, we do not expect 2017 to be smooth sailing. 

With valuation metrics for the broader market nearing prior peak levels, the risk/reward is becoming more asymmetric to the downside for an increasing number of stocks.  This does not mean that the market cannot move higher; rather, the point here is that a naive passive portfolio may be less desirable vs. an actively managed portfolio that can identify attractive valuations while avoiding the more expensive segments of the market.  While investors appear to be taking a glass half-full view on the outlook for 2017, Cambiar is taking a more balanced approach in assessing the upside for the stocks we’ve invested in.  While company-specific fundamentals remain the driving force behind our buy/sell decision, market risks include the potential for a strong dollar, the market’s digestion of additional rate hikes by the Federal Reserve, and an unexpected uptick in inflation.  As multiple expansion has likely run its course, upside from here will be more heavily dependent on earnings.  Time will tell…but on this basis, we like our chances as we head into the new year.

Disclosure

Mutual fund investing involves risk, including the possible loss of principal.  The Cambiar Opportunity Funds may invest in derivatives, which are often more volatile than other investments and may magnify the Fund's gains or losses. There can be no assurance that the Fund will achieve its stated objectives.  Diversification does not protect against market loss.  A company may reduce or eliminate its dividend, causing loses to the fund.

To determine if a Fund is an appropriate investment for you, carefully consider the Fund’s investment objectives, risk factors and charges and expenses before investing. This and other information can be found in the Fund’s prospectus which can be obtained by clicking here or calling 1-866-777-8227. Please read it carefully before investing. There is no guarantee that the Funds will meet their stated objectives.

Performance data quotes are past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost and current performance may be lower or higher than the performance quoted. For performance data current to the most recent month-end, please call 1-866-777-8227.

The Morningstar RatingTM for funds, or "star rating", is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods. CAMOX was rated against 1255 US-domiciled Large Blend funds over a three year period, 1106 over a five year period and 814 over a ten year period. With respect to these large blend funds, CAMOX received a rating of 3 stars, 2 stars and 1 stars, respectively. Past performance is no guarantee of future results.

Price/Earnings F1Y is a calculation that divides the current share price by the estimates of earnings in the next four quarters. Debt/Equity - Long Term is a calculation that takes interest bearing, long-term debt divided by shareholder equity. EPS Growth - Long Term is a calculation that takes the company’s estimated profits for five years divided by the outstanding shares. Active share is a holdings-based measure of active management representing the percentage of securities in a portfolio that differ from those in the benchmark index. Alpha is a measure of risk-adjusted performance. Beta is a measure of risk in relation to the market or benchmark. The Sharpe Ratio is a direct measure of reward-to-risk and is calculated by subtracting the risk free rate from the rate of return for a portfolio and dividing the result by the standard deviation. Standard Deviation is a statistical measure of historical volatility; a measure of the extent to which numbers are spread around their average. R-Squared measures how closely a portfolio’s performance correlates with the performance of a benchmark index.These calculations are not a forecast of the Fund’s future performance.

The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value weighted index, with each stock's weight in the Index proportionate to its market value. The S&P 500 returns do not reflect any management fees, transaction costs or expenses. The Russell 1000® Value Index measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values. Indexes are unmanaged and one cannot invest directly in an index.

This material represents the portfolio manager’s opinion and is an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice or a specific recommendation of securities.

Cambiar Funds are distributed by SEI Investments Distribution Co., 1 Freedom Valley Dr Oaks, PA 19456, which is not affiliated with the Advisor.  Cambiar Funds are available to US investors only. Strategies included within the Institutional Investor offer are not mutual funds and are not affiliated with SEI Investments Distribution Co.