Ask Our Expert: The Value Investing Process, Part III

Mike Liss

Mike Liss, CFA, CPA, Vice President, Senior Portfolio Manager

Q: Where are you finding opportunities?
A: We’re finding opportunities in health care and energy stocks. Within health care, we’re finding opportunities across the spectrum because of Obamacare. We find that millions of people will gain insurance on exchanges and through Medicaid, and this will lead to increased utilization of health care services. Therefore, we believe that health care companies will benefit and earnings for companies will rise.

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Everything You Wanted to Know About Convertible Securities but Were Afraid to Ask

Although they are equity securities, convertible preferred shares combine characteristics of bonds and stocks, providing attractive dividend rates and reduced downside risk. As the name implies, convertible securities can be converted at the investor’s choice into other investments, normally into shares of the issuer’s underlying common stock. Convertibles are typically issued as bonds or preferred stock.

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CIO Insights: Asset Allocation vs. Security Selection

Scott Wittman

Scott Wittman, CFA, CAIA, Chief Investment Officer, Asset Allocation & Disciplined Equity

At a high level, there are two sources of active return—asset allocation and security (issue) selection. For example, determining the percentage of your portfolio to allocate to stocks is an asset allocation decision. Choosing stocks is a security selection decision. Both are important at different times in the market cycle. The “big” (top-down, asset allocation) decision can add tremendous value given divergence in asset class returns. But there are also times when the “small” (bottom-up, issue selection) decisions are dominant. We believe it’s likely to be a stock/bond picker’s market going forward.

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Chart of the Week: Parents See Career Capital as Success Driver

Chart of the WeekIn a recent survey of 4,100 business executives in 32 countries by Accenture, almost nine in 10 professionals believe that building “career capital”—differentiated skills that define and advance their careers—is crucial to success in the workplace. Respondents listed having longevity in their careers, higher education or advanced degrees and knowledge/competency in a particular area among the things that contribute most to building career capital. Also, the survey found that if money were not an object, 44% of working dads and 42% moms would rather work than stay home.
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Retire? (Where’s the Fire?)

RetirementThe traditional retirement age, 65, isn’t feasible for many baby boomers. Almost half of baby boomers don’t think they’ll retire until age 66 or older, according to a recent Gallup poll. When asked, “At what age do you expect to retire?” Thirty-nine percent of respondents said age 66 or older. The second most popular answer was 64 or younger, and the third most popular choice was 65. Only 10% said they never expected to retire.

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Ask Our Expert: The Value Investing Process, Part II

Mark Kopinski

Mike Liss, CFA, CPA, Vice President, Senior Portfolio Manager

Q: When do you buy a stock?
A: Our first step is to identify the leading companies. These are companies that have good returns on capital, strong balance sheets, and have leading market shares that are protected by high barriers to entry. We are trying to identify these companies before they become a good risk/reward. A good example of this is the company Schlumberger. In 2007, the stock was trading at over $100 per share. Subsequently, the stock fell into the low $30 range over the next year. Since we had done our work up front, we were ready to take action as the stock fell. And our shareholders, in my opinion, were able to benefit from our efforts.

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Emphasizing Active Investment Management

The chart below tracks the flows of S&P 500® Index sector weightings since 1997. Imagine holding (without recourse) a significant weight of financial stocks heading into the recent Financial Crisis, being loaded with technology stocks leading into the tech bubble, or even encumbered with energy stocks splashing into the early 1980s oil crisis (not pictured). Active managers are searching for the winners of tomorrow whose growth potential is not adequately reflected in current stock prices.
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CIO Insights: Our Teams Explore Market Correlations

Dave MacEwen

G. David MacEwen
Co-Chief Investment Officer

Victor Zhang

Victor Zhang
Co-Chief Investment Officer

In our view, declining correlations* support active management as well as our adherence to bottom-up fundamental analysis to select individual stocks on their own merits. This quarter, the chief investment officers from each of our investment disciplines explore these and other correlation ramifications in our upcoming CIO Insights blog posts. Continue reading

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Chart of the Week: Knowledge Tops Alma Mater, Business Leaders Say

Chart of the WeekBusiness leaders prioritize knowledge over college, according to the Gallup-Lumina Poll on Higher Education. When asked what hiring managers valued most in candidates, business leaders responded that knowledge of a field (84%) trumped other areas such as applied skills (79%), the candidate’s major (28%), and the candidate’s school (9%). In contrast, the average American rated college and major as more important: 30% and 47%, respectively.
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Can You Do More With Less?

RetirementNearly half of us use all of our paychecks, but spend as if we have more. We purchase things we want while neglecting things we need, like an emergency account or retirement savings. An important step toward having enough money in retirement is changing your current spending habits.

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