Large Cap Value Strategy
The objective of the Strategy is to generate alpha over a full market cycle by investing in a diversified group of equities with a market capitalization that exceeds $10 billion at the time of purchase. The majority of portfolio holdings are domestic securities, but foreign securities may be included.
|Benchmark:||S&P 500® Value Index|
|Assets Under Management:||$88.66 million*|
|Strategy Inception:||August 2003|
|Fact Sheet:||1Q22 Large Cap Value|
*as of 03/31/22
|Typical Portfolio Attributes|
|Market Cap Range||$10 billion and greater|
|Number of Holdings||25 - 50|
|Position Sizes||1 - 5%|
|Maximum Sector Weightings|
Relative to the Benchmark
|No formal restrictions|
|Portfolio Turnover Range||30 - 60%|
|Cash Levels||< 5%|
|Portfolio Manager||Team managed|
Data subject to change.
Annualized Performance (%)for period ended 03/31/22
|1 Year||3 Year||5 Year||7 Year||10 Year||Since
|Large Cap Value Composite (Gross)||15.39||17.24||14.19||11.36||11.65||10.29|
|Large Cap Value Composite (Net)||14.61||16.43||13.44||10.64||10.97||9.45|
|S&P 500® Value Index||12.58||14.12||11.14||10.45||11.89||9.10|
Calendar Performance (%)for period ended 03/31/22
|Large Cap Value Strategy Composite (Gross)||1.16||25.75||17.79||24.03||-6.45||18.72|
|Large Cap Value Strategy Composite (Net)||0.97||24.94||16.93||23.22||-7.01||17.99|
|S&P 500® Value Index||-0.16||24.90||1.37||31.92||-8.96||15.36|
The Large Cap Value Equity Strategy outperformed its benchmark in the quarter. When making investment decisions, we seek to own good businesses at good prices so our sector allocations are byproducts of the businesses we own. We comment on those companies that have the most significant impact on estimated security selection.
Among the companies positively impacting security selection:
Palo Alto Networks, Inc. is one of the top providers of enterprise network security used to secure all users, applications, data, networks, and devices with comprehensive visibility and context, continuously and across all locations. Quarterly results were ahead of guidance across all metrics including billings and backlog growth, which it refers to as remaining performance obligations. Total revenues grew 30% vs. a year ago. Strength was broad based across all three security platforms and products despite supply chain challenges. Services, which account for roughly three-quarters of overall revenue, grew 32%. Products, which account for the balance of revenue, grew 21%. The geopolitical situation with Russia and expected increase in cyber-attacks also raised the financial prospects for many cyber-security providers during the quarter. Cybersecurity has become a focus as breaches increase and data is lost. Additionally, complexity has increased as the enterprise network perimeter has disappeared due to an increased number of connected devices and also working from home. Those offering enterprise-wide security solutions are best positioned as the IT landscape moves towards less vendors and complexity is increasing with distributed infrastructure and end user flexibility.
AbbVie Inc. is a global biopharmaceutical company dedicated to research and development, manufacturing, commercialization, and sale of innovative medicines. Its key commercial assets are in the therapeutic areas of immunology, hematologic oncology, neurology, and an aesthetics business. Quarterly commercial results included operational revenue growth in immunology, hematologic oncology, neuroscience, and aesthetics of 13.3%, 4.7%, 19%, and 22.8% respectively. Adjusted earnings per share guidance for 2022 reflects 10% growth at the midpoint. It confirmed its 2025 guidance for Skyrizi and Rinvoq of $15 billion in risk adjusted sales as new indications are expected to offset the impact of Rinvoq label restrictions. Longer term, we see durability in its immunology franchise after Humira’s loss of exclusivity. Two recently approved drugs, Skyrizi and Rinvoq, have proven to be superior to Humira in clinical trials and are being developed in a broader set of indications. We see potential in the drug pipeline including new therapeutic areas such as cystic fibrosis as well as earlier stage assets being developed to improve upon existing treatments. Cash flows are expected to be used to paydown debt, fund business development activities for pre-commercial, and commercial assets, as well as pay an above average dividend.
Leidos Holdings, Inc. is the largest standalone government technology services provider. It specializes in defense, intelligence, healthcare and civil, spanning many government agencies from the Department of Defense to the United States Department of Veteran Affairs. During the quarter it won the Defense Information Systems Agency (DISA) Enclave Services contract, valued at $11 billion over 10 years. Also, the federal budget allocated more money to areas within defense and civil which are expected to benefit Leidos. Finally, it was determined that Leidos won the $2 billion National Aeronautics and Space Administration (NASA) service contract without an unfair advantage, which should allow implementation to proceed. We feel that Leidos’ scale allows it to effectively compete for large government contracts as stringent requirements limit the number of competitors. This provides them with a stable revenue and cash flow profile.
Check Point Software Technologies Ltd, provides protection against cyber security threats across a wide range of environments which include physical and virtual networks, cloud and mobile, critical infrastructure and the Internet of Things (IoT). Quarterly revenues were ahead of expectations as subscription-based revenues grew 13% year-over-year and accounted for 35% of total revenues. Guidance for revenue and earnings per share were above the mid-point and the top end of expectations, respectively. The geopolitical situation with Russia and related increase in cyber-attacks may have raised its financial prospects. Its comprehensive network solutions have attracted a large client base. With cash on the balance sheet and no debt, Checkpoint is in a prime position to add solutions to further expand its addressable market and remain an industry leader.
AmerisourceBergen Corporation is one of the largest providers of global pharmaceutical sourcing and distribution services helping healthcare providers and drug manufactures improve patient access. It distributes products to healthcare providers located in the United States and select global markets using a network of distribution centers. Its two business segments include U.S. Healthcare Solutions and International Healthcare Solutions. On February 25th the three largest players in the drug distribution industry, including AmerisourceBergen, agreed to proceed with the opioid settlement as 46 states and roughly 90% of sub-divisions have joined. This provided clarity to an issue that has been a long-term overhang, and the settlements terms leave ample financial flexibility. We favor AmerisourceBergen’s leading specialty pharmaceutical position, diversified business model, significant cash generation, and a history of disciplined capital allocation.
Among the companies negatively impacting security selection:
Synchrony Financial, provides private label credit cards used in partner’s stores or online. It performs the underwriting, and the retailer is primarily responsible for promotion. Many cards are closed loop, used exclusively at one retailer, which allows consumer data to be used to improve merchandising decisions. Its quarterly asset quality metrics, including amounts past due, allowance for losses, and charge offs deteriorated modestly from at or near pandemic lows in the previous quarter, while growth drivers such as purchase volume, average active accounts, and net interest margin improved. In total we see this as a positive for earnings. Synchrony benefits from the trend of consumers seeking either in store discounts or store-based financing. Additionally, its partners pay for most of the advertising spend, allowing it to focus capital elsewhere.
PayPal Holdings, Inc. offers digital services to make the movement of money easy, including peer-to-peer transfers, banking services, online payment acceptance, and alternative forms of payments including cryptocurrencies. Quarterly growth was lower than anticipated due to lower e-commerce growth, lower spend on new customer acquisition, and bad actors opened accounts to capture short-term incentives without using the platform. In response, PayPal has chosen to focus more on current customer engagement and average revenue per user to drive growth with the added benefit of anticipated lower churn. It is de-emphasizing new customer acquisition, although it expects to continue to gain new customers. PayPal’s strategy is to expand services that make routine financial transactions simpler by partnering with – rather than competing against — other financial players. We believe it will be effective driving engagement and revenue from existing users while attracting new users and increasing the average transaction size.
Premium athletic shoe and apparel retailer Foot Locker, Inc. operates through multiple store banners also including Champs Sports, Footaction, Runners Point, WSS, and a large presence in Japan through Atmos. Its operating segments are defined geographically and include North America, EMEA (Europe Middle East and Africa), and Asia Pacific. Nike, Foot Locker’s largest supplier, announced an increase in its shift to digital direct sales. In response, Foot Locker is accelerating existing strategies to provide more high-end offerings across a variety of brands. These strategies have already been gaining traction as last quarter’s comparable store sales growth, excluding Nike, was greater than 30%. It’s omni-channel capabilities bridge the digital world into physical stores and are used to maximize the shopping experience based on evolving behaviors. These changes include pivoting away from malls to new standalone stores and continued development and integration of digital capabilities. We expect financial performance in the way of cash flow generation and capital deployment to create shareholder value while maintaining a strong balance sheet.
Western Digital Corporation is a leading developer, manufacturer, and provider of data storage devices including flash based solid-state drives (SSDs) and hard-disk drives (HDDs). Despite supply chain challenges revenues were ahead of guidance and, gross margins were in line. Cloud revenue continued to be strong with year-over-year growth of 89% and represented 40% of total revenue. Supply chain challenges will persist throughout calendar year 2022 resulting in guidance that was below expectations. Longer term, we believe its shares do not reflect the value of the SSD business, a joint venture with Kioxia. Although there are challenges to be resolved, value could be unlocked either through a Kioxia initial public offering or Western Digital purchasing Kioxia outright.
Abbott Laboratories is a globally diversified health care company that discovers, develops, manufactures, and sells health care products. Its four business segments include medical devices, diagnostics, nutrition, and established pharmaceuticals. Quarterly results reflected broad based strength across all business segments. Full year 2022, guidance was favorable including organic revenue growth in the high single digits for the base business, which excludes COVID-19 testing. Later in the quarter, it initiated a voluntary recall of certain infant formulas manufactured at Sturgis, Michigan. Although it tests all batches for bacteria prior to distribution, and no distributed product tested positive, it found evidence of bacteria in non-product areas. The FDA recently inspected the plant, is evaluating its findings, and will act as necessary. We like its competitive positioning including a high-quality reputation for established pharmaceuticals sold in emerging markets, its attractively priced continuous glucose monitoring system, branded FreeStyle Libre, Ensure nutritional products, and a broad line of diagnostic systems expanded to include COVID-19 testing. Additionally, it has a demonstrated history of successful capital allocation including internal research and development and acquisitions.
Performance Attribution (%)for quarter ended 03/31/22
Top Ten Holdingsfor quarter ended 03/31/22
|% of Portfolio|
|Palo Alto Networks, Inc.||6.38|
|CVS Health Corporation||5.47|
|Berkshire Hathaway, Inc. - CL B||5.18|
|CF Industries Holdings, Inc.||4.88|
|F5 Networks, Inc.||4.13|
|UnitedHealth Group Inc||4.08|
Top Contributors (%)for quarter ended 03/31/22
|CF Industries Holdings, Inc.||5.90||2.72|
|Berkshire Hathaway, Inc. - CL B||4.59||0.83|
|Palo Alto Networks, Inc.||5.72||0.68|
Top Detractors (%)for quarter ended 03/31/22
|Paypal Holdings, Inc.||2.26||-0.85|
|Foot Locker, Inc.||2.70||-0.85|
|Western Digital Corporation||2.98||-0.71|
|F5 Networks, Inc.||4.31||-0.63|
Composite Characteristicsfor period ended 03/31/22
|Price/Book Value Ratio||52.94||2.99|
|Dividend Yield (%)||1.53||2.11|
|Weighted Average Market Cap||208.13||171.54|
|3 Year Annualized Tracking Error (%)||6.06||N/A|
|3 Year Annualized Standard Deviation (%)||16.98||18.40|
|3 Year Alpha||4.02||N/A|
|3 Year Beta||0.87||N/A|
|3 Year Information Ratio||0.51||N/A|
|5 Year Annualized Tracking Error (%)||5.74||N/A|
|5 Year Annualized Standard Deviation (%)||15.33||16.25|
|5 Year Alpha||3.40||N/A|
|5 Year Beta||0.88||N/A|
|5 Year Information Ratio||0.53||N/A|
Sector Weightsfor period ended 03/31/22