Asset Manager Overview
Natixis Asset Management is a sizeable business that uses it network of over 20 affiliates to run a range of investment strategies. This particular fund falls under the remit of Loomis Sayles, which has a history of running money dating back to the 1920's. The team ultimately responsible are Boston based, with its principles having worked together for over ten years. The strategy has been the responsibility of Loomis Sayles since 2010, when it acquired Evergreen Investments (EI, a subsidiary of Wachovia Bank) in 2010, with the entire investment team moving across as part of the deal.
Fund Manager/Team Overview
The team is headed by Aziz Hamzaogullari, who has managed this strategy for US domiciled investors since 2006 having initially launched it during his time at Evergreen Investments. The team consists of nine members, which includes the portfolio manager and dedicated analysts, and has steadily expanded over the years. The three most senior analysts, Brian Coyle, Peter Linnard and Rayon Ward, have worked with the manager since the strategy's inception in 2006.
Investment Philosophy & Process Overview
The fund is run under the philosophy that stock markets can be far too focused on the short term and that superior returns can be generated by identifying attractively valued, higher quality companies and holding them for the long term. There are seven stages to the investment process, which centres on in depth company analysis. The investible universe is essentially the Russell 1000 Growth index, however being part of this index is not a prerequisite to investment as the team will find candidates through their bottom-up fundamental research. In addition, capital intensive and/or highly regulated industries (such commodity-related and utilities firms) are largely ignored therefore a sizeable part of the universe is not considered from the outset. The first four elements seek to test the team's view of a company's quality. Elements considered take into account aspects such as identifying a firm's competitive advantage, assessing the sustainability of its business, what makes the company a leader in its field, the strength of its balance sheet and if the management team is appropriately incentivised and has a proven track record of successfully allocating capital. Most potential investments fail to meet the team's quality criteria and as a result do not progress through to the remaining stages. The next element is to consider the potential for growth by looking at its sources, i.e. product and strategy lines, and sustainability of profits. The team builds its own detailed financial models looking at least five years into the future and these are independent of company guidance or stockbroker forecasts. The remaining two parts of the process focus on a company's valuation with the team building best, base and worse case scenarios to assist with entry points and position sizes.
Investing across 30-40 holdings, the final portfolio is reasonably concentrated and is constructed without reference to the benchmark. The type of company sought can lead to sizeable deviations at the sector level when viewed against the index. However, the manager has a pragmatic attitude to risk and views it in terms of a permanent loss of capital. To ensure an adequate level of diversification, the portfolio is built across a range of business drivers such as e-commerce, ophthalmology and online advertising. New investments tend to be added in stages and do not exceed 5% at purchase. Once a full position has been built, it is unlikely to exceed 8% of the fund's assets.
Turnover tends to be very low, typically below 15% p.a. Sales are primarily affected due an unfavourable change to a company's structural drivers, losing conviction in the management team, a superior risk/reward opportunity or if the team view a stock as overvalued.
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