(Formerly known as the Cambiar Unconstrained Equity Fund) The Cambiar Global Ultra Focus Fund is a concentrated, non-diversified portfolio that is made up of the highest conviction names from our Opportunity, Small Cap, SMID and International Equity Funds. In general, portfolio construction is based on a stock by stock analysis. The investment team will rely heavily on fundamentals and valuations, while taking into consideration global macro events.
The Fund may also engage in some proprietary shorting that Cambiar calls parent-subsidiary arbitrage (PASA). At certain times, the market valuation of a parent company and that of the subsidiary can become disconnected and nonsensical, creating unique opportunities.
Non-diversified fund designed for long-term capital appreciation
Concentrated 20-30 stock portfolio.
Global portfolio with a bias towards U.S. stocks.
Fund may hold derivatives, pair trades and occasional short positions.
Brian M. Barish, CFA
The performance data quoted represents past performance. Past performance 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. Returns assume reinvestment of all dividend and capital gains distributions. Expense ratio is 1.40% (gross); 1.35% (net). Cambiar Investors, LLC has contractually agreed to reduce fees and reimburse expenses in order to keep net operating expenses from exceeding 1.10% of the average daily net assets of each of the Fund’s share classes until September 1, 2018. The Russell 3000 Index measures the performance of the largest 3000 U.S. companies representing approximately 98% of the investable U.S. equity market. The Russell 3000 Index returns do not reflect any management fees, transaction costs or expenses. The MSCI World Index is an unmanaged index compiled by Morgan Stanley Capital International. The MSCI indices returns do not reflect any management fees, transaction costs or expenses. Individuals cannot invest directly in an Index. The Global Ultra Focus Fund is not a diversified fund. For performance data current to the most recent month-end, please call 1-866-777-8227.
The Fund charges a 2.00% redemption fee on redemptions of shares held for less than 180 days.
|Top 10 Holdings||% Weight|
|British American Tobacco||5.1|
|% of Total||52.5|
|Holdings Subject to Change|
|Attributes||Cambiar||MSCI World||Russell 3000|
|Market Cap Wtd Avg||44.4 B||135.9 B||164.3 B|
|Market Cap Median||25.0 B||13.5 B||1.8 B|
|Sector Weights||Cambiar||MSCI World||Russell 3000|
|Sector Weights||Cambiar||MSCI World||Russell 3000|
Market Review (12.31.2017)
Global equities extended their year-long upward trajectory into the fourth quarter, closing out 2017 at or near their high water marks for the year. The positive sentiment towards stocks was primarily in response to an accelerating global economy, which bodes well for corporate profits. U.S. stocks received a boost from the U.S. tax reform bill, which should be an additional tailwind to earnings and provides corporates with more firepower that can be deployed via share buybacks, increased dividends or strategic merger/acquisition activity.
Posting a full-year return of 25%, the MSCI EAFE Index bested the S&P 500 Index return of 21.8% - marking the first year since 2012 where international developed stocks outpaced their U.S. counterparts. Emerging markets was the standout performer in 2017, with the MSCI Emerging Markets Index gaining 37%. While valuation levels have moved higher regardless of geography, international markets may continue to offer a more attractive risk/reward vs. U.S. stocks, based on one-year forward multiples:
|Market Index||One-Year Forward P/E|
|MSCI Emerging Markets||12.6x|
Given current valuation levels for U.S. stocks, further upside should primarily be a function of earnings growth, as we believe multiple expansion beyond current levels will be difficult. In contrast, international markets offer the potential for multiple expansion as well as a continued recovery in earnings.
Global Ultra Focus Fund
Despite a positive tailwind in the form of a broad rally in global equities, the Cambiar Global Ultra Focus Fund was unable to participate to the same extent as the Fund’s assigned benchmarks. The relative underperformance in the quarter was the culmination of a difficult 2017 for the Fund. Although Cambiar’s value discipline was clearly out of favor in light of a strong preference for growth stocks, the Fund was also impacted by challenged stock selection across a few sectors of the portfolio. While disappointed by the Fund’s showing in 2017, we remain confident that the Fund is in position to post improved results in 2018.
As discussed in past commentaries, the Fund’s more concentrated portfolio construction approach will often result in a more pronounced return stream – hopefully to the benefit of the client, but clearly not always the case. While each of the holdings in the Fund possess their own company-specific drivers, the common thread amongst these companies is that they tend to be undervalued relative to their future earnings power (i.e., value stocks). 2017 witnessed a strong preference for growth, with valuation a distant second in investor consideration. The Fund essentially did not have enough of what the market wanted – and by definition too much of what the market didn’t want. To be clear, this is not to suggest that analytical errors were not made as it relates to the investment thesis for some of our holdings. That said, Cambiar continues to own a number of the larger individual detractors – as our view is that the investment case still holds.
Schlumberger is a good example of a position that endured a challenging 2017, yet remains a high-conviction position in the Fund. The stock’s lagging return was due to a muted recovery in international drilling/well activity. While clearly early in our purchase, our indications point to a strong pipeline of new business in 2018, which should translate into a potent earnings recovery in the coming years. Schlumberger, in our view, has also done an excellent job of restructuring their business during the industry downturn - which should add significant operating leverage as revenues improve.
At a sector level, technology was the top performer within the index – for the fourth quarter as well as on a full year basis. Although the Fund had maintained an overweight allocation to tech, Cambiar’s holdings in the sector trailed the index by a wide margin. Notable laggards were Diebold Nixdorf Corp. and Synaptics, which both declined over 20% in 2017. Diebold, the ATM operator, has an approximate 35% market share in the global ATM market (a duopoly with competitor NCR) – so a clear market leader. The company has not executed well since its 2016 acquisition of Wincor Nixdorf, but with the stock now trading at 2009 levels and catalysts in the form of a new incoming CEO, anticipated replacement demand, and activist involvement, Cambiar sees an attractive risk/reward. Given low market expectations, even a modest amount of topline growth would be meaningful to the depressed share price.
Although Cambiar’s investments in Industrials lagged slightly during the quarter, they were a notable bright spot for the year. Airbus was the main contributor, as the company continues to show positive order growth, improving margins, and strong production volume. Cambiar continues to maintain a constructive outlook for Airbus, although the strong move in the past year has us slightly concerned about near-term valuations.
A small allocation to emerging markets was a positive, and that exposure boosted the Fund’s results from a regional perspective for the quarter as well as on a full year basis.
The past year was unquestionably one of the more challenging relative performance periods for the Global Ultra Focus Fund. With that said, Cambiar remains confident in the longer-term potential for our companies. Many holdings in the Fund are trading at or near trough valuations; even a modest uptick in sentiment could result in a material revaluation in the share price. The Global Ultra Focus Fund has commonly performed best after a year of underperformance, and given the portfolio’s current positioning and relative valuation versus the broader market, we are confident a similar bounce back can occur in 2018 and beyond.
Global equities delivered a dream year for investors – strong returns with very low volatility. As we contemplate the outlook for equities in 2018, two key considerations are global growth and valuations. The acceleration in economic growth across most geographies is unlikely to sharply decelerate in 2018, providing a tailwind to corporate profits and stock prices. That said, it is improbable that 2018 will be without some degree of increased volatility along the way. Volatility is not necessary a bad thing – the corresponding increase in dispersion across sectors is typically beneficial to active managers such as Cambiar.
Regarding valuation, it is hard to argue that equities in the aggregate are inexpensive. With that said, it is worth noting that the expansion in multiples has not been uniform – by geography nor by sector. For example, although U.S. stock averages are at all-time highs, market levels in Japan, the United Kingdom and Europe are still below their 2007 levels (in dollar terms). Such variances provide an additional opportunity for active managers to potentially outperform.
What unforeseen shocks could derail the upward trajectory for equities? Geopolitical risk is always front of mind; changes in central bank monetary policy will be another variable worth watching. Although the three rate increases by the Federal Reserve did little to impede stocks from advancing in 2017, the ongoing normalization in policy should eventually be felt by market participants (particularly those with higher leverage ratios). And while generally accommodative monetary policy continues in Japan, the European Central Bank is likely to articulate their plan to end quantitative easing at some point in 2018. The mood at Cambiar is best described as constructive paranoia; while optimistic in the outlook for our companies, we spend equal time thinking about what could go wrong.
The Global Ultra Focus Fund was formerly known as the Cambiar Unconstrained Equity Fund.
Mutual fund investing involves risk, including the possible loss of principal. In addition to the normal risks associated with investing, international investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging Markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. The Fund may invest in derivatives, which are often more volatile than other investments and may magnify the Fund's gains or losses. With short sales, you risk paying more for a security than you received from its sale. Short sales losses are potentially unlimited and the expenses involved with the shorting strategy may negatively impact the performance of the Fund. Diversification may not protect against market risk. The Cambiar Global Ultra Focus Fund is a non-diversified fund. 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.
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. CAMAX was rated against 720 World Large Stock funds over a three year period, 589 funds over a five year period and 333 funds over a ten year period. With respect to these World Large Stock funds, CAMAX received a rating of 1 stars for the three year, 3 stars for the five year period, and 3 stars for the ten year period respectively. Past performance is no guarantee of future results.
Russell 3000 Index returns do not reflect any management fees, transaction costs or expenses. Individuals cannot invest directly in an Index.
P/E ratio 1 YR Forecast 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. 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 MSCI World Index is an unmanaged index compiled by Morgan Stanley Capital International. The MSCI World index returns do not reflect any management fees, transaction costs or expenses. The Russell 3000 Index returns do not reflect any management fees, transaction costs or expenses. The Russell 3000 Index measures the performance of the largest 3000 U.S. companies representing approximately 98% of the investable U.S. equity markets. 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. Individuals cannot invest directly in the index.
As of 12.31.17, the Cambiar Global Ultra Focus Fund had a 3.0% weighting in Airbus, 1.1% in Diebold Nixdorf Corp, 4.3% in Schlumberger, and 3.8% in Synaptics.
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.
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.