Q&A with the Focus Growth team:
Christopher J. Bonavico, Patrick G. Fortier, and Gregory M. Heywood
What types of qualities does the team look for in a company?
We seek companies that are undergoing fundamental change (at the industry level, the product level, or the management level) or that, in our opinion, have a sustainable competitive advantage, in addition to having a strong business model that we believe can hold up over time and through a variety of economic and market environments.
While we expect attractive revenue and earnings growth from the companies we invest in, the true measure of a company’s value for us is its cash economics (that is, its returns on invested capital and its ability to generate free cash flow).
Our global mandate allows us to invest in U.S. and foreign companies across all market capitalizations but we primarily invest in mid- and large-cap equity securities. For the non-U.S. portion of the Fund, we invest in the companies of both developed and emerging market countries (though we mainly invest in countries with developed economies and our emerging markets weighting has been relatively modest since the Fund’s inception).
What is your competitive advantage in the global equity space?
We believe our investment approach provides us with a distinct advantage over our competitors. The most important characteristics of that approach are:
- Portfolio concentration. We aim to hold approximately 35–45 stocks, which is a smaller number than many of our global equity investor peers. We believe that holding fewer companies, and knowing each of them thoroughly, could lead to enhanced performance.
- Long-term investment horizon. We believe that our long-term investment horizons (generally 3–5 years or through a full market cycle) give us an advantage over investors who tend to focus on short-term data points. These data can often be misleading or transitory, and don't necessarily reflect the long-term value of a company.
- Intrinsic valuation analysis. Finally, we focus on what we believe are the true cash metrics of a business — such as free cash flow and return on capital — to assess a company’s quality and its potential to grow over the long term. We believe the metrics we employ give a fuller picture of a company’s value than price-to-earnings and other accounting measurements used by many of our competitors.
We believe our comprehensive analytical approach can be particularly advantageous when investing globally, given the variety of factors that can unnecessarily influence a company’s value. These factors include differences in accounting standards, money flows into and out of countries, and markets driven by short-term changes in investor sentiment.
How, if at all, is a macroeconomic view of the market applied to the Focus Global Growth Fund’s strategy?
While we are cognizant of broader macroeconomic developments, we do not rely on economic forecasting to construct or maintain our portfolio. Instead, we rely on our primary strength — fundamental analysis of individual companies. This conviction in fundamental analysis is reflected in our concentrated portfolios. Unlike investors who seek to identify global trends or replicate a benchmark, we believe that identifying strong businesses and holding them in a concentrated portfolio for a long-term period (3–5 years or through a full market cycle) could provide enhanced long-term results.
The views expressed represent the Managers' assessment of the market environment as of December 2011 and should not be considered a recommendation to buy, hold, or sell any security, and should not be relied on as research or investment advice. Views are subject to change without notice and may not reflect the Manager’s current views.
IMPORTANT RISK CONSIDERATIONS
Investing involves risk, including the possible loss of principal.
Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before investing. This and other information can be found in the Fund’s prospectus and, if available, its summary prospectus, which may be obtained by clicking the prospectus link located in fund literature page or calling 800 523-1918. Investors should read the prospectus and, if available, the summary prospectus carefully before investing.
Investments in small and/or medium-sized companies typically exhibit greater risk and higher volatility than larger, more established companies.
International investments entail risks not ordinarily associated with U.S. investments including fluctuation in currency values, differences in accounting principles, or economic or political instability in other nations.
Investing in emerging markets can be riskier than investing in established foreign markets due to increased volatility and lower trading volume.
Because the Fund expects to hold a concentrated portfolio of a limited number of securities, the Fund's risk is increased because each investment has a greater effect on the Fund's overall performance.
Not FDIC insured. No bank guarantee. May lose value.
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