The fund will be managed for GAM by Advisory Research, a Chicago-based US equity specialist. Its investment team comprises four fund managers who are partners and owners of the company. They take collective responsibility for the fund and work with a team of five analysts.
The fund aims for growth by investing 30-40 small and medium sized US companies in the Russell 2500 Value Index, but will not be constrained by a benchmark. The preservation of capital is the team’s first priority and they look at both the downside risk and the upside potential.
Companies selected for the portfolio will have a market capitalisation of $400m-$9bn and will tend to be undervalued stocks that are off the radar of mainstream investors.
The managers will be looking for catalysts that will help the stocks reach what they see as their true value. They will take a long-term view, intending to capture the growth when the stocks return to favour with mainstream investors.
Portfolio construction begins with the team narrowing down around 3,000 value stocks within the market cap range. These stocks are screened based on factors such as profitability and balance sheet strength.
A shortlist of 350 stocks is then produced and this is whittled down by further analysis, including company visits. The four managers must agree unanimously to buy a company and also decide on the size of the holding.
The team has a strong sell discipline, selling stocks when they reach their target price; when better companies are found and where there is negative news coming out of a company but improvements are unlikely. Holdings will also be trimmed when they reach 6-7 per cent of the portfolio.
This fund could be useful for IFAs who want to asset allocate to specific parts of the US market. However, smaller companies will be hardest hit by falls in US consumer spending relative to their bigger counterparts, which are more affected by global issues.