The Cambiar Large Cap Value strategy is the firm's oldest strategy and utilizes a team approach to investing. Each member of the seven person investment team is then charged with finding the most compelling investment opportunities within their assigned sectors/industries.
The team conducts a rigorous internal research process to identify companies that we believe possess an attractive risk-return profile – we believe the risk of capital loss is modest while the potential for outsized return is high. Such scenarios are the result of price sensitivity at the point of purchase, as well as a non-consensus assessment of the true economic value of the company over a forward 1-2 year timeframe.
Portfolio was incepted in 1973.
The portfolio holds between 35-45 stocks.
Sector weights based on bottom-up fundamental, not index construction.
Invests in companies with a market cap larger than $5 billion.
Brian M. Barish, CFA
The performance information depicted above represents the Cambiar Large Cap Value Composite (Institutional). 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. Results are reported in U.S. dollars. The Russell 1000 Value Index is a float-adjusted, market capitalization weighted index of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values. The Russell 1000 Index measures the performance of the 1,000 largest companies in the Russell 3000 Index, which consists of 3,000 of the largest U.S. equities. The S&P 500 is a float-adjusted, market capitalization weighted index of 500 of the top companies in leading industries of the U.S. economy. Both the S&P 500 and the Russell 1000 Value Index are broadly based indices which reflect the overall market performance and comparisons may not reflect Cambiar’s performance as compared to the performance of other investment advisors. These stock indexes assume reinvestment of dividends and capital gains, and assume no management, custody, transaction or other expenses. Cambiar’s past results do not necessarily indicate Cambiar’s future performance and, as is the case with all investment advisors who concentrate on equity investments, Cambiar’s future performance may result in a loss. Net of fees performance reflects a blended fee schedule of all accounts within the relevant composite and Cambiar clients and mutual fund investors may incur actual fee rates that are greater or less than the rate reflected in this performance summary. Performance is preliminary, please contact us for finalized figures.
|Top 10 Holdings||% Weight|
|Royal Dutch Shell||3.2|
|MGM Resorts Int'l||3.1|
|% of Total||31.8|
|Attributes||Cambiar||Russell 1000V||S&P 500|
|Market Cap Wtd Avg||84.3 B||119.5 B||150.1 B|
|Market Cap Median||43.1 B||8.2 B||19.4 B|
|Sector Weights||Cambiar||Russell 1000V||S&P 500|
|Risk Statistics*||Cambiar||Russell 1000V||S&P 500|
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, we feel the current environment does not possess the investor euphoria that often presages the end of a stock market cycle. That said, we believe 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 surprisingly, 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.
Large Cap Value
The Cambiar Large Cap Value (LCV) strategy 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 ranking for the strategy’s mutual fund counterpart – Cambiar Opportunity Fund).
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 LCV portfolio 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 LCV portfolio 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 Cambiar LCV portfolio for the year was a small detractor from performance.
The LCV portfolio 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 LCV 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 LCV portfolio, 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.
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 our companies. 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.
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.