Year-to-date the fund, a Portfolio Adviser 2012 Fund Award Winner, has marginally outperformed the US market, with returns of 10.8% compared to 9.4% from the S&P 500 and 7.8% from the Russell 2000 Index.
It has also outperformed the 7.9% average return of the IMA North America Sector.
Gilligan said the Q1 outperformance is "particularly impressive" given the fund started the year with a 14% cash position and maintained a conservative approach throughout the strong rally seen during the quarter.
Cash has been gradually reduced to around 8% and is likely to stay around current levels, Gilligan added.
He said the managers’ cautious stance on the US stock market is based on the fact average profit margins have rebounded very sharply to reach record highs.
Although the team believe they will stay high in the short run, it thinks there is limited upside to operational leverage and so earnings will grow more in line with sales.
This restricts the investment universe as the team focuses on those companies with good potential for margin expansion. But the $7bn fund’s above average cash position has been balanced with extra market risk achieved through a 12% allocation to higher beta Latin American equities.
Tech weighting
Another sector the team has taken a higher-than-typical weighting in is technology, with 13% exposure to tech companies.
"Although this position is still significantly underweight compared to the S&P 500 (19%) and Russell 2000 (17%), it is a higher allocation than the team typically run. The tech sector has not been an area the team has previously had a significant position in due to the scarcity of companies meeting their strict investment criteria. However, the sector is as cheap as the team can remember in their careers," Gilligan explained.
The fund continues to receive inflows of capital, which makes it all the more impressive that they continue to successfully implement their strict value oriented approach, Gilligan concluded.
