As part of its fund selector analysis on US equities, Morningstar has identified which US equity funds to watch based on their three-year performance.
Value-oriented approach
The Dodge & Cox Worldwide US Stock Fund is among the strongest performers in the sector and has a Morningstar analyst rating of gold. This fund benefits from one of the most experienced, stable and well-resourced teams in the US equity space. The current eight-person investment policy committee that runs the strategy averages 23 years of tenure with the firm. It includes current chairman and chief investment officer Charles Pohl, director of research Brian Cameron and director of international equity Diana Strandberg.
They are supported by a deep pool of analysts and follow a disciplined value-oriented investment approach. They favour businesses with good management, competitive advantages and good growth potential. These may also be businesses that are under a cloud at the time of purchase.
They typically stick with their contrarian picks for years until they pay off. The portfolio is built from the bottom up, with sector exposures often veering from market weightings. Technology, financials and healthcare sectors have dominated the portfolio for a number of years – they made up more than 65% of equity assets at the end of 2016 – and the top 10 picks have generally accounted for about a third of the assets.
Investing in controversial areas has led to lumpy performance at times but the team’s patience and discipline has paid off, as evidenced by the excellent long-term results. Investors who share the managers’ patience and long-term investment horizon have been well rewarded.
Concentrated portfolio
The Polen Focus US Growth Fund has been managed by Dan Davidowitz and Damon Ficklin since its launch in 2013 and the two have managed the US-sold version of this product since 2010. The duo aim to identify high-quality companies with strong earnings potential, abundant free cashflow, low debt levels and high and sustainable returns on equity.
Their analysis incorporates the assessment of industry dynamics, competitive advantages and includes meetings with company management and stakeholders. The managers will typically avoid cyclical and capital-intensive firms. The investment approach results in a very concentrated portfolio with holdings diversified across the growth spectrum to enable the strategy to perform in different market environments.
The bulk of the portfolio is invested in secular growth firms trading at reasonable valuations, such as Alphabet. The other growth buckets include stable firms with underappreciated growth such as Accenture, durable growth names for more uncertain times and firms with significant growth potential, such as Celgene. The strategy has posted solid returns since its inception.
