Benchmarked against the Russell Value 3000 Index, the all-cap strategy attempts to provide an Oeic replication of the existing River Road Dividend All-Cap Value Strategy; its investment universe encompasses companies that have a yield of at least 2%.
Sanders sees opportunities in small caps, saying 75% of the companies eligible for investment have no analyst coverage. but as of mid-June the portfolio had 52% in large caps.
He cites consumer staples stocks such as Proctor & Gamble and General Mills as the kind which will be favoured by the new fund. By contrast, the offering will be underweight financials, where Sanders has “a hard time finding value”, and technology, though it does have positions in Microsoft and Intel.
The investment process, designed to stop the manager from overpaying for a fund, focuses on an absolute value metric that overlays current price levels.
“We would need a discount of at least 10%-15% off our absolute value calculation before we can take a decision to acquire the stock,” he says.
“For stocks we are holding, if they reach 110% of their absolute value we should be actively trimming them at that point. At 120% we have to be out of the position.”
Similarly, Sanders says, positions must also be exited if total unrealised losses exceed a certain amount, rather than simply being averaged down. This, he suggests, helps to limit managers’ tendency to start getting “obsessed” with the state of a particular position – a failing that can lead to further value destruction as well as causing other holdings to be ignored.
Sanders describes the fund as “slightly more cautious, with a lot of high quality names in the portfolio.” That caution is reflected in his view of the state of play in the US: “The market has got ahead of the economy, and hopefully it will trade in a range while the economy catches up. But there are still opportunities for us”.
