This fund aims for growth by investing in 40-60 US equities selected for GAM by New York based manager Manning & Napier. Manning & Napier was formed in 1970 and manages around $14bn in assets.
Stock recommendations are made by a team of 28 analysts that are divided by sector. These ideas are put before a team of eight who form the senior research group and it makes the final decision. The analysts will cover all stocks within an industry, making sure they understand how each industry works. They will look at long term trends and establish buy and sell targets for each stock.
Stock selection begins with a top-down view, followed by bottom-up research that is unconstrained by benchmark or market cap. Another member of the team must endorse any stock idea suggested by an analyst before it goes to the senior research group. Stocks will make it into the portfolio if they tick all the right boxes and are below the target price the team has set for the stock. If the stock looks good but its price is above this tar get, it will be placed on a list to the future and monitored.
Stocks are sold once they reach a good price or if the price falls but if the reasons for holding it are still good, a falling price may represent a buying opportunity.
There are three broad strategies used by the analysts. The hurdle rate strategy identifies strong companies in depressed sectors that are likely to bounce back as conditions improve. They are likely to be firms in consolidating industries, with improving market share and where profits are driven by a cyclical upturn.
The strategic profile strategy looks at companies where valuations do not reflect the prospects for future growth. Firms in this category will have a sustainable competitive advantage; they may benefit from technology and will be in industries where there are high barriers to entry.
The bankable deal strategy focuses on asset and cash flow to highlight value that is not reflected in the current share price. In general, the analysts look for companies that are strong enough to withstand cycles that may have a negative impact on industries. The team will stick with this approach over the long term, as it believes this should provide more wins than losses.
The outlook for US markets is mixed, with problems in the sub-prime mortgage market, a weak dollar and fears of interest rates rises offset by positives such as corporate restructuring and M&A activity.
Manning & Napier’s three strategies appear appropriate for this environment but some investors may prefer a fund manager to take responsibility for this fund rather than a team of analysts.