The Cambiar Global Equity strategy is structured as a ‘best ideas’ vehicle, whereby sourcing of new ideas will come from Cambiar’s existing domestic and international portfolios.
The strategy has the ability to seek investment opportunities from across the globe, making it Cambiar's most diversified product offering.
Ania A. Aldrich, CFA
Todd L. Edwards, PhD
Inception Date: 2.28.1998. The performance information depicted above represents Cambiar’s Global Equity Composite.Returns are presented gross and net of management fees. Gross and net returns have been reduced by transaction expenses. Net returns are also reduced by actual investment advisory fees and other expenses that may be incurred in the management of the account. For the periods of 2013 to the present, the gross returns reflect accounts with both gross and “pure” gross performance. “Pure” gross returns, applicable to SMA portfolios, are not reduced by any expenses, which includes transaction costs, and are provided as supplemental information. Net returns for SMA portfolios are calculated by subtracting actual SMA fees reported by the SMA sponsor. Results are reported in U.S. dollars. Performance results for the Global Equity Composite are evaluated against the MSCI World Index and MSCI ACWI (All Country World Index). The MSCI World Index is a free float-adjusted, market capitalization weighted index that measures large and mid-cap equity performance across countries with developed markets. The MSCI ACWI is a free float-adjusted, market capitalization weighted index that measures the equity market performance of developed and emerging markets. The MSCI ACWI and World Indexes are broadly based indices which reflect overall market performance and Cambiar’s returns may not be correlated to either index. The indices assume no management, custody, transaction or other expenses. Cambiar’s performance and the performance of the benchmarks include the reinvestment of all income. Benchmark returns are net of withholding taxes. Performance is preliminary, please contact us for finalized figures.
|Top 10 Holdings||% Weight|
|% of Total||22.1|
|Attributes||Cambiar||MSCI World||MSCI ACWI|
|Market Cap Wtd Avg||71.1 B||106.2 B||100.9 B|
|Market Cap Median||32.5 B||11.1 B||8.8 B|
|Sector Weights||Cambiar||MSCI World||MSCI ACWI|
|Top 5 Countries||Cambiar||MSCI World||MSCI ACWI|
|Risk Statistics*||Cambiar||MSCI World||MSCI ACWI|
Market Review (12.31.2016)
Global equity markets posted mixed returns for the final quarter of 2016. U.S. stocks were the bright spot in the quarter, as investors reacted positively to the pro-growth agenda put forth by the Trump Administration. International equities missed the invite to the party put on by their U.S. counterparts, with most non-U.S. markets incurring modest negative returns for the quarter. Emerging Markets was hit the hardest, with the MSCI Emerging Markets Index returning -4.2%. Despite their 4Q setback, EM stocks were one of the top-performing markets (outside of the U.S.) in 2016; top EM contributors were Brazil and Russia. One non-U.S. market that was positive for the quarter was Japan, as a stronger dollar/weaker yen was viewed as supportive for Japanese stocks. Japanese equities have rebounded strongly in the second half of 2016, after struggling for the first six month of the year. Cambiar’s International and Global portfolios have varying allocations to Japan – mostly a function of the opportunity set and relative risk/reward for the underlying investment strategy.
Bottom-Up vs. Top-Down Investing
One takeaway from 2016 was the extent to which stock prices were buffeted by big picture events that took place around the globe – to the point where company-specific fundamentals were a distant second in importance. Examples included the reach-for-yield trade, the Brexit event in June, Donald Trump’s victory in November, and the OPEC production cut in December. Although the market’s response to such events moderated as the year progressed, investment manager performance was impacted (to varying extents) by positioning of one’s portfolio going into these episodes. Given the event-driven year that was 2016, Cambiar’s view on bottom-up vs. top-down investing is a timely discussion.
The Cambiar International and Global Equity strategies are predominantly managed using a bottom-up approach; our analysts seek to identify high quality businesses that are nearing an inflection point in their business that we believe is not being recognized or properly valued by the market. This ‘beat to the spot’ approach is based on a rigorous in-house research process. As part of this research effort, the Cambiar team will often consider relevant macro variables that may be a part of a top-down discipline. But the key is the order of the process; i.e., the macro is one factor in the Cambiar buy/sell decision, vs. the macro leading the decision. Where relevant, it is Cambiar’s preference for macro factors to have a positive (or neutral) impact to the investment case; e.g., a higher oil price deck will be a positive for the strategies’ energy holdings, just as steepening yield curves will be beneficial for many of our financial positions. A change in the macro can also be a negative leading indicator; the precipitous drop in oil prices during the second half of 2014 was a red flag for a related decline in margins/earnings within the sector.
Perhaps the bigger takeaway for our clients is that Cambiar attempts to take a 360-degree view when evaluating the companies in our portfolio – from both a risk and reward perspective. The bottom-up will almost always trump the top-down, but the objective is to base portfolio decisions on an unbiased assessment on all data that can impact the investment case for our companies.
The Cambiar Global Equity strategy posted a positive return in the fourth quarter, and ended 2016 with a solid gain for the year. When viewed on a geographic basis, performance for the quarter was essentially segmented between the United States (positive return) and the rest of the world (negative returns). The U.S. markets also did most of the heavy lifting for calendar year 2016 – although Emerging Markets was another outlier to the upside for the year. The Global Equity portfolio continues to maintain an underweight allocation to EM vs. our benchmark (4% vs. 10.5% for the index), as the strategy has historically had more of a developed market skew. Cambiar continues to do work in identifying possible investment ideas in EM; yet given potential headwinds in the form of higher interest rates in the U.S. and a stronger dollar, we do not feel overly pressured to have more exposure in this segment of the market.
The Global portfolio maintained a lower U.S. weighting vs. the benchmark in the quarter (as well as on a full year basis). Although the portfolio has generally taken a more neutral stance vs. the index as it relates to U.S./non-U.S. exposures, the outperformance of the U.S. market in recent years has resulted in an increasing pipeline of international companies that we believe offer a more attractive risk/reward profile. While this line of thinking did not materialize in 2016, Cambiar remains comfortable with the portfolio’s current geographic allocations.
At a sector level, Financials was the runaway outperformer in the quarter – as banks, insurance, and related financial services companies re-rated on a combination of rising rates, higher economic growth expectations and the potential rollback of cumbersome regulations. The Global portfolio benefited from both a meaning allocation to Financials as well as strong stock performance within the sector. 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. Cambiar’s still-constructive posture in financials is based on reasonable valuations and continued upside potential via higher earnings, increased capital return and modest multiple expansion.
The market’s preference for sectors/companies that are positively geared towards global growth trends subsequently resulted in lagging returns for more defensive sectors such as Consumer Staples, Utilities, Telecom and Healthcare. The Global portfolio is exposed to these sectors to varying degrees (e.g. overweight Healthcare, no allocation to Utilities) in an effort to provide balance as well as offset the strategy’s cyclical positioning.
One sector where the Global portfolio trailed the benchmark was Technology; Cambiar’s tech holdings trailed in the quarter as well as on a full-year basis. Much of the underperformance can be attributed to one holding – Ericsson, a Swedish telecom equipment company. The investment thesis of improving free cash flow and anticipated revenue mix shift from equipment to services did not unfold as expected, and the position was liquidated in the quarter.
While not an impact in the quarter, the portfolio’s approximate 6% cash level over the course of the year subsequently detracted from the strategy’s 2016 return vs. a fully invested portfolio. Cambiar does not attempt to be tactical in the management of cash; the decisions to sell and buy are separate in nature, and may have timing mismatches that result in a cash balance.
2016 marks the fourth consecutive year (and six out of seven) in which U.S. stocks have outperformed international equities. This seemingly persistent one-way trade flies in the face of classic diversification tenets, and has likely resulted in a pronounced home country bias in many client portfolios.
Perhaps it is the embedded mean reversion tendencies in us, yet Cambiar is reasonably optimistic about the outlook for international equities in 2017 – on both an absolute basis as well as relative to U.S. markets. While market valuations are approaching cyclical highs in the U.S., international stocks remain reasonably priced relative to forward earnings estimates. Additional tailwinds include improving global growth and steepening yield curves. In our view, the global business cycle has a number of years left to go; if anything, it is probably time for many of the world’s economies to play catch up to the U.S. If we are correct in this outlook, international equity markets should also be poised to outperform.
That being said, we are certainly cognizant of the risks, not only that the global economy disappoints on the growth side and deflationary issues (i.e., falling bond yields) return to the fore, but also that inflation may gather force. This latter scenario would likely require more tightening than expected from the Fed, which together with a strong dollar could cause problems for global equities. It is also important to see some follow-through from international markets on earnings – particularly in Europe. Although Cambiar anticipates solid improvement on this front, a failure to produce a meaningful earnings rebound is an additional risk. As always, we are looking first and foremost for compelling investments to own on behalf of our clients; at this juncture, we continue to find abundant opportunities.
Certain information contained in this communication constitutes “forward-looking statements”. Due to market risk and uncertainties, actual events or results, or the actual performance of Cambiar’s client accounts may differ materially from that reflected or contemplated in such forward-looking statements. All information is provided for informational purposes only and should not be deemed as a recommendation to buy the securities mentioned. There is no guarantee that the opinions expressed herein will be valid beyond the date of this presentation. There can be no assurance that the portfolio will continue to hold the same position in companies described herein, and the portfolio may change any portfolio position at any time. The specific securities identified and described do not represent all of the securities purchased, sold, or recommended by Cambiar and the reader should not assume that investments in the securities identified and discussed were or will be profitable.