Opportunity Fund

Share Class Investor        Institutional
Ticker CAMOX        CAMWX
Inception Date 6.31.1998      11.2.2005
Minimum Investment       $2,500        $5 million

Cambiar Investors - 2017 ESTIMATE Capital Gain Distributions

The Cambiar Opportunity Fund is a team-managed portfolio designed to capitalize on large cap investments.  The Fund is a natural extension of the Cambiar Large Cap Value portfolio, the firm's oldest strategy. 

The seven person domestic investment team conducts a rigorous internal research process to identify companies that we believe possess an attractive risk-return profile – where we are confident that the risk of capital loss is modest while the potential for outsized return is high.  

The outcome is a concentrated portfolio of established businesses that meet Cambiar’s four investment criteria: quality, valuations, value creation/catalyst and upside potential.

  • Bottom-up, relative value investment process that favors undervalued companies that possess a catalyst for future growth.
  • The Fund holds between 35-45 stocks.
  • The Fund may invest in derivatives.

Portfolio Manager

BrianB(2016) 

Brian M. Barish, CFA 

Analyst Meeting (2016)

Morningstar Rating™

The performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost and current performance may be lower or higher than the performance quoted. Institutional Class Shares of the Fund commenced operations on November 3, 2005. As a result, the performance information provided for Institutional Class Shares incorporates the returns of Investor Class Shares of the Fund for periods before November 3, 2005. Institutional Class Shares would have substantially similar performance as Investor Class Shares because the shares are invested in the same portfolio of securities and the annual returns would generally differ only to the extent that total expenses of Institutional Class Shares are lower. The performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost and current performance may be lower or higher than the performance quoted. Investor Share Class: Expense ratio is 1.10% (gross); 1.05% (net). Institutional Share Class: Expense ratio is 0.85% (gross); 0.80% (net). Cambiar Investors, LLC has contractually agreed to reduce fees and reimburse expenses in order to keep net operating expenses from exceeding 0.80% of the average daily net assets of each of the Fund’s share classes until September 1, 2018. S&P 500 Index is an unmanaged index compiled by Standard & Poor’s Corp. Russell 1000® Value Index measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values. Index returns do not reflect any management fees, transaction costs or expenses. Individuals cannot invest directly in an Index. For performance data current to the most recent month-end, please call 1-866-777-8227.

Portfolio Profile (as of 9.30.2017)

Top 10 Holdings % Weight
Tyson Food 3.3
eBay 3.2
EOG Resources 3.2
Occidental Petroleum 3.2
Wells Fargo 3.1
Citigroup 3.1
Synchrony Financial 3.1
United Parcel Services 3.1
Royal Dutch Shell 3.0
HP 3.0
% of Total 31.3
Holdings Subject to Change  

 

Attributes Cambiar  S&P 500 Russell 1000V
Price/Earnings F1Y 16.2 17.9 16.0
Price/Book 2.1 3.0 2.0
Debt/Equity  0.7 1.2 0.9
EPS Growth   13.4 11.8 9.2
Market Cap Wtd Avg 90.0 B 178.6 B 118.2 B
Market Cap Median 41.2 B 21.1 B 8.8 B
Active Share 89.4    
Sector Weights   Cambiar      S&P 500 Russell 1000V
Consumer Discretionary 1.9 11.9 6.8
Consumer Staples 11.9 8.2 8.7
Energy 13.9 6.1 10.9
Financials 24.8 14.6 26.0
Health Care 13.6 14.5 13.9
Industrials 3.1 10.2 8.5
Information Tech 19.0 23.2 8.2
Materials 0.0 2.9 2.9
Real Estate 2.3 2.8 4.8
Telecom Services 0.0 2.2 3.2
Utilities 2.0 3.1 6.2
Cash 7.7    
Risk Statistics* Cambiar S&P 500 Russell 1000V
Alpha -2.4 0.0 -1.9
Beta 1.1 1.0 1.0
R-Squared 81.9 100.0 91.5
Sharpe Ratio 0.7 1.0 0.8
Standard Deviation      11.9 10.1 10.3
*Three Year      

Commentary

Market Review (9.30.2017)

U.S. equities (as defined by the S&P 500 Index) notched a gain of 4.5% in the third quarter.  Barring a meaningful correction in the fourth quarter, the market is poised to deliver a ninth consecutive year of positive returns, and is the second-longest bull market on record in the post-WWII period (as measured by the S&P 500 from March 2009 to present).  The resiliency in equities remains high, as stocks seem unfazed by increasing geopolitical tensions abroad, normalization of monetary policy in the U.S., and an absence of tax/policy reform from Washington D.C.  As has been the case throughout the current bull market, any pullback in stocks during the quarter presented a buying opportunity. 

Active management has had a better showing in 2017, yet asset flows remain decidedly biased towards low cost index funds (source: Morningstar).  Given the rising tide environment for stocks that has been in place for the past eight years, it is hard to refute the buy-the-market at a low cost strategy.  Yet this ‘free lunch’ is bound to end at some point, and given the massive flows into passive instruments, the move to the exits (should one occur) may not be an orderly process.  This should not be interpreted as Cambiar calling an end to the current bull market – there are no shortage of positive data points in the market that could translate into additional upside for stocks.  But at minimum, an increased awareness of valuation and selectivity should be in order.

Energy Stocks - Poised for Improved Returns?

After meaningfully lagging the market for the first six months of 2017, energy stocks rebounded in the third quarter.  Is the recent recovery the start of an improving performance trend within the sector, or a short-term bounce that is not likely to be sustained?  After having maintained an underweight allocation to energy stocks in 2015, Cambiar has been slowly rotating capital back into the sector.  At present, our view is that the energy sector offers an attractive risk/reward – based on our outlook for a stable-to-increasing price deck for oil over the next 12 months. 

Why did energy stocks struggle in the first two quarters of the year?  After posting a sharp rally in the fourth quarter of 2016 on OPEC’s announced production cuts, the energy sector reversed course in January.  Climbing global oil inventories led to increased negative sentiment toward the sector – given the oversupplied market conditions.  Despite rebounding in September, energy stocks remain in the red on a year-to-date basis.  The decoupling in stock valuations relative to oil prices thus far in 2017 borders on capitulation by investors (see chart).

WTI Vs SP Energy Sector

Source: Bloomberg.  WTI (West Texas Intermediate)

Frustration with the pace of the recovery in oil market vs. past cycles is sure to be weighing on investor sentiment; that said, we believe the combination of attractive valuations (in what is increasingly becoming a fully/overvalued equity market) and improving fundamentals may result in brighter days ahead for energy stocks. 

As with most assets, the oil price is primarily a function of supply and demand.  Global oil demand has been strong this year, with industry publications continuing to revise their demand estimates higher.  On the other hand, global oil supply growth has not kept pace with demand due to OPEC production cuts as well as underinvestment in many areas of the world outside of the United States. 

While the current supply/demand picture is healthy, the spike in oil in storage during the 2014-2016 timeframe resulted in a glut of oil and oil products in storage.  As the below chart illustrates, U.S. oil inventories have begun to post consistent draws - which essentially means the global oil market is not just back in balance but is actually under-supplied.  While there is some work to do in working down the supply bulge and reaching more normal storage levels in the U.S. (~700K barrels), the data is moving in the right direction.

US OIl Inventory

Source: Bloomberg

A continued overhang in the bull case for energy stocks is the role of shale production in North America (N.A.); i.e., any uptick in oil prices will result in increased shale activity, thereby capping oil price gains.  Yet can N.A. shale fill the potential gap that may occur from lack of new investment in conventional oilfields?  Expenditures in new oil finds have been sharply curtailed since the collapse in oil prices three years ago.  The big integrated and national oil companies are instead seeking to squeeze more out of their existing assets – which should succeed in providing barrels in the short-term, but at the expense of increasing decline rates.  When comparing the barrels lost via a 5% decline rate vs. the incremental shale production estimates, one can create a scenario where shale is a necessary source of supply, vs. the burden tagline that it wears today.   

Uncertainties regarding the pace of the recovery remain; however, Cambiar believes these concerns are reflected in the attractive valuations that exist within the sector.  Cambiar’s holdings in the sector span the energy stack, including integrated oil companies, exploration and production companies and oil services companies.  Many of these companies have undergone significant restructuring – such that improving top line results have the potential for a disproportionately positive impact on earnings.          

Opportunity Fund

The Cambiar Opportunity Fund outperformed both assigned strategy benchmarks in the quarter, and is now ahead of the secondary Russell 1000 Value index on a year-to-date, one and three year basis.  Growth stocks continue to outpace their value counterparts, although there was a broadening in sector participation during the third quarter.  One bright spot in the quarter was the Energy sector, which rebounded in tandem with a recovery in oil prices.  Overall positioning in the Fund was relatively unchanged during the quarter, with buy/sell activity limited to one sale (in addition to incremental adds/trims to existing positions). 

According to Charles Schwab, the correlation between individual stocks within the S&P 500 and the index itself is now at the lowest levels since 2001.  The result should be a more favorable backdrop for active management, which can add value via security selection as well as avoidance of sectors/stocks that appear overvalued or possess challenged fundamentals.  Performance is the ultimate proof statement; on that basis, we are encouraged by recent results for the Opportunity Fund. 

At a sector level, healthcare stocks comprised the top contributor to performance for the quarter.  Cambiar was able to add value via security selection within the portfolio’s pharmaceutical and biotech positions.  The relatively acyclical attributes within the sector offer a prudent offset to the portfolio’s cyclical exposures.  

Although activist investors have had less impact on individual stocks than in years past, their involvement nonetheless tends to have an initial positive impact on a company’s stock price.  Cambiar benefited from such an event in the quarter via disclosure of an activist investment in Adient (consumer discretionary) – a manufacturer of seats and related components for the auto industry.  Cambiar initiated a position in Adient in early 2017, post the company’s spin-off from Johnson Controls.  While still constructive on Adient’s fundamentals and market share (according to Adient, one in every three seats in the world is produced in their facilities), Cambiar trimmed the position in response to the ~29% gain during the quarter.

Cambiar’s energy positions were an additional value-add in the quarter, with the Fund benefiting from positive stock selection as well as a modest overweight allocation (13.9% vs 6.1%).  As discussed above, Cambiar views the year-to-date decline in energy stocks to be excessive vs. the commodity price – particularly in light of what we view to be an improving industry backdrop.  The portfolio’s positions do not require heroic assumptions in the oil price to do well, and each holding has a shareholder return policy in the form of dividends.

Financials and technology continue to represent the two largest sectors in the portfolio (25% and 19%, respectively).  Performance in both sectors for the quarter were relatively in line with the index, although Cambiar benefitted from an overweight allocation to technology.  The Fund continues to have only modest exposure in those sectors that could be negatively impacted by a potential monetary tightening/reflation trade; real estate and utilities are two such sectors where we believe a degree of caution is warranted.     

Performance detractors in the quarter were a function of non-participation in Basic Materials (the top-performing sector in 3Q, but represented less than 3% of the index), as well as a modest cash drag.  While not attempting to be tactical with cash (was ~6% during the quarter), the Cambiar team continues to exercise patience in waiting for an appropriate entry point.  Given elevated market valuations, we remain disciplined with regards to price targets – on purchase as well as sale.

Looking Ahead

Global equities, as measured by the MSCI All Country World Index, have broadly rallied through the first nine months of 2017, with stock averages in the U.S., Japan, Europe and Emerging Markets all trading at 52-week highs.  Given positive economic growth data, low volatility, strong corporate profits and lack of attractive investment alternatives, equities appear to represent the best house on the block for investors.  Although Cambiar remains optimistic as it relates to our companies, we spend equal amounts of time thinking about what could impair the investment case.  Complacency and investing are not a good mix.

As always, Cambiar continues to focus the core of our research on company-specific fundamentals.  That said, we will also include macro variables into our analysis, to the extent the macro is relevant to our bottom-up work.  One top-down segment of the market we are monitoring is central bank activity, in particular the U.S. Federal Reserve.  The U.S. continues to slowly make progress on normalizing monetary policy; we believe the key consideration is whether the markets will be able to digest higher rates and the Fed’s planned balance sheet reduction.  The moves made by policymakers in the U.S. could have a ripple effect on the global markets – potentially jeopardizing what has been a synchronized growth environment.  We are also closely monitoring the energy markets, given the high correlations between oil prices and stock movements within the sector.

Disclosure

Mutual fund investing involves risk, including the possible loss of principal.  The Cambiar Opportunity Funds may invest in derivatives, which are often more volatile than other investments and may magnify the Fund's gains or losses. There can be no assurance that the Fund will achieve its stated objectives.  Diversification does not protect against market loss.  A company may reduce or eliminate its dividend, causing loses to the fund.

To determine if a Fund is an appropriate investment for you, carefully consider the Fund’s investment objectives, risk factors and charges and expenses before investing. This and other information can be found in the Fund’s prospectus which can be obtained by clicking here or calling 1-866-777-8227. Please read it carefully before investing. There is no guarantee that the Funds will meet their stated objectives.

Performance data quotes are past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost and current performance may be lower or higher than the performance quoted. For performance data current to the most recent month-end, please call 1-866-777-8227.

The Morningstar RatingTM for funds, or "star rating", is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods. CAMOX was rated against 1108 US-domiciled Large Value funds over a three year period, 962 over a five year period and 689 over a ten year period. With respect to these large value funds, CAMOX received a rating of 3 stars, 3 stars and 2 stars, respectively. Past performance is no guarantee of future results.

Price/Earnings F1Y is a calculation that divides the current share price by the estimates of earnings in the next four quarters. Debt/Equity - Long Term is a calculation that takes interest bearing, long-term debt divided by shareholder equity. EPS Growth - Long Term is a calculation that takes the company’s estimated profits for five years divided by the outstanding shares. Active share is a holdings-based measure of active management representing the percentage of securities in a portfolio that differ from those in the benchmark index. Alpha is a measure of risk-adjusted performance. Beta is a measure of risk in relation to the market or benchmark. The Sharpe Ratio is a direct measure of reward-to-risk and is calculated by subtracting the risk free rate from the rate of return for a portfolio and dividing the result by the standard deviation. Standard Deviation is a statistical measure of historical volatility; a measure of the extent to which numbers are spread around their average. R-Squared measures how closely a portfolio’s performance correlates with the performance of a benchmark index.These calculations are not a forecast of the Fund’s future performance.

The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value weighted index, with each stock's weight in the Index proportionate to its market value. The S&P 500 returns do not reflect any management fees, transaction costs or expenses. The S&P 500 Growth index is market-capitalization-weighted index consisting of those stocks within the S&P 500 Index that exhibit strong growth characteristics.  The S&P 500 Value index is market-capitalization-weighted index consisting of those stocks within the S&P 500 Index that exhibit strong value characteristics.  

The Russell 1000® Value Index measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values. Indexes are unmanaged and one cannot invest directly in an index.

Beta is a measure of volatility in comparison to the market as a whole.

As of 9.30.17, the Cambiar Opportunity Fund had a 1.9% weighting in Adient. 

This material represents the portfolio manager’s opinion and is an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice or a specific recommendation of securities. There is no guarantee that any forecasts made will come to pass.

Cambiar Funds are distributed by SEI Investments Distribution Co., 1 Freedom Valley Dr Oaks, PA 19456, which is not affiliated with the Advisor.  Cambiar Funds are available to US investors only. Strategies included within the Institutional Investor offer are not mutual funds and are not affiliated with SEI Investments Distribution Co.