Global Ultra Focus Fund

Fund Documents Commentary Profile

Global Ultra Focus Fund

Share Class Investor  
Ticker CAMAX  
Inception Date 8.31.2007
Minimum Investment       $2,500  

2016 Final Capital Gain Distributions

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.

Portfolio Manager

BrianB(2016) 

Brian M. Barish, CFA 

Trader (2016)

Morningstar Rating™

Performance Charts

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 1.21% (gross); 1.12% (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 March 1, 2019.  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. 

Portfolio Profile (as of 3.31.2018)

Top 10 Holdings % Weight
ACS Actividades 6.9
AerCap 6.8
British American Tobacco 5.5
Deutsche Telekom 4.6
Occidental Petroleum 4.2
Twitter 3.9
eBay 3.9
Philip Morris Int'l 3.8
BAE Systems 3.7
Baidu 3.4
% of Total 46.7
Holdings Subject to Change  
Attributes Cambiar MSCI World
Price/Earnings F1Y 13.3 15.4
Price/Book 1.8 2.3
Debt/Equity 1.0 1.2
EPS Growth 16.4 12.7
Market Cap Wtd Avg 47.2 B 133.6 B
Market Cap Median 26.0 B 13.3 B
Countries  Cambiar MSCI World
United States 44.9 59.2
United Kingdom 15.5 6.0
Netherlands 8.8 1.9
Spain 7.0 1.2
France 6.7 4.1
India 4.3 0.0
Germany 4.1 3.6
China 3.5 0.0
Japan 2.7 9.1
Ireland 2.4 0.2
Sector Weights Cambiar      MSCI World
Consumer Discretionary 10.1 12.7
Consumer Staples 10.9 8.7
Energy 14.4 6.1
Financials 7.7 17.9
Health Care 6.1 11.7
Industrials 17.1 11.6
Information Tech 22.2 17.6
Materials 0.0 5.1
Real Estate 0.0 3.0
Telecom Services 9.9 2.7
Utilities 0.0 3.0
Cash 1.5  
Sector Weights Cambiar      MSCI World
Alpha -3.7 0.0
Beta 1.6 1.0
R-Squared 54.9 100.0
Sharpe Ratio 0.7 1.2
Standard Deviation 16.5 7.9
*Five Year    

Commentary

Market Review (3.31.2018)

Global equities posted mild losses during the first quarter of 2018.  While there were no significant drivers behind the pullback in stocks, a lack of new upside catalysts and an increase in market volatility led investors to move to the sidelines.  Talk of protectionist policy between the U.S. and China and the resulting negative impact on trade/global growth was an additional uncertainty that weighed on investor sentiment in the quarter.  Throughout the current bull market, any decline in stocks has generally been a good buying opportunity, as losses were quickly erased and stocks moved on to new highs.  Yet the current environment thus far in 2018 appears more cautious, with loss aversion beginning to outweigh upside potential. 

Given where we are in the business/market/valuation cycle, perhaps a more circumspect posture is appropriate.  While Cambiar still sees varying levels of upside in the equity markets, the Goldilocks environment is behind us and security selection/avoidance decisions will take on increased importance in 2018.  The tightening of monetary policy underway in the U.S. may also spark a rotation in market leadership, as the dramatic outperformance in growth stocks appear poised to give way to their value counterparts.  Higher interest rates are also beginning to offer investors an alternative to stocks, while serving as a potential headwind to companies with no earnings and/or leveraged balance sheets. 

Volatility – A New Paradigm or Return to Trend?

In considering the investment climate of 2018, a look back on market conditions in 2017 is helpful.  Last year was in many ways a near-perfect environment for equity investors: a synchronized global economic expansion, continued low-interest rates, favorable corporate earnings, and generally positive economic and political developments.  Entering 2018, change within the market was bound to occur – and as these somewhat inevitable shifts have emerged, so too has volatility.  We believe the following considerations will play a role in market behavior during 2018 (and beyond).

Positive Real Interest Rate   Monetary policy has been the primary tool to promote the global recovery over the past ten years.  With U.S. inflation levels running at close to 2% and with the economy having achieved full employment, the Federal Reserve is now raising rates back to a positive real number.  Assuming at least two more rate hikes in 2018, the resulting Fed Funds rate in the 2.25% range would be a positive real rate of return for the first time this decade.  As the debt and equity markets have become quite comfortable with an extremely low economic cost of capital, the withdrawal of monetary stimulus is bound to exert pressure on asset prices.  While many have anticipated this eventuality, it would be naïve to believe that this process after such a long duration will be a smooth one.  We believe the rise in interest rates as an explanatory variable for the rise in volatility exceeds most other factors.

Real Interest Rate 2018 (web)

Source: Bloomberg.  Formula: US 3 Month Bill - PCE Deflator. 

 

Quantitative Easing (QE) Programs Outside the U.S. are Reaching Their Limits – QE remains to this day a difficult concept to explain.  While it looks like money printing, it is in fact the simultaneous creation of bank reserves and the removal of risk-free instruments from the financial system.  The objective is to urge financial participants out on the risk spectrum.  In this regard, the QE programs of both Japan and Europe have gone further than the U.S. Federal Reserve.  In Japan, the vast preponderance of positive-yielding debt has been bought by the Bank of Japan (BOJ); the BOJ has subsequently expanded their purchase activity into the corporate debt equity (via ETF) markets.  In Europe, the European Central Bank (ECB) is bumping up against ownership limits for sovereign issues.  The result in both cases is a shortage of risk- free bonds of various durations, an essential source of collateral for interbank liquidity.  The resulting reduction in liquidity makes longer-term currency hedging prohibitively expensive for market participants such as major Japanese and European manufacturers – and thus blunts the benefit of QE.  We believe Europe’s improved economic performance means that the ECB will begin exiting QE in 2018, and raising interest rates back into positive territory in 2019.  Japan’s situation is uniquely complicated and we don’t expect QE to end there in 2018; however, given that the QE program is leading to illiquidity and challenges in basic capital market functions, returns appear to be diminishing. 

Tariffs and Trade Wars? – President Trump has shown a clear willingness to approach negotiations through a confrontational style, including the topic of global trade.  Tariffs on steel and aluminum, and possibly on select Chinese manufactures, likely represent negotiating tactics to force some kind of “deal” or reconciliation.  Even so, for this to be an effective tactic, there would need to be some willingness to implement stiff tariffs in certain categories, just to prove that these are serious threats.  As such, there is some risk that these tariffs “reverse” key stimulative benefits of tax reform and the general economic momentum.  Global trade linkages have become deeply integrated – broadly speaking, it would take a lot of regressive tariffs to rupture these relationships.  At the margin, protectionist policy is not a favorable development.  That said, Chinese IP theft, forced technology transfer, and domestic market protections are difficult to defend as reciprocally reasonable trade policies to tolerate in the long term.  Outside the U.S., the EU has proposed a transaction tax on internet businesses, reasoning that these are disruptive to local economies and tend to channel revenue and profits into the cloud and the most favorable tax jurisdictions.  With locally sourced “profits” difficult to quantify, the EU may tax revenue.  Taken in isolation, these may be reasonable responses to the negative externalities posed by online businesses.  As it happens, these are mostly U.S. companies, and the largest ones in the global stock market, and they may earn less money than would otherwise have been the case.

Market Structure – Global equity market ownership is vastly different from the pre-GFC timeframe.  Index funds, sector ETFs, and quantitative strategies have come to predominant markets, in some cases owning an outright majority of certain stocks and their free floats.  On the other side of the markets, active managers have vastly less firepower to deploy as prices move.  The consequence is that small fluctuations in market flows can lead to outsized stock price moves.  Not unlike the unintended consequences of QE detailed earlier, true stock market and individual stock price liquidity (i.e., the amount of money needed to move a stock price) is lower today than in the past.  

Global Ultra Focus Fund

The Cambiar Global Ultra Focus Fund posted a return of -3.33% for the first quarter, which trailed the -1.28% return of the MSCI World Index.  After a Goldilocks-like market in 2017 that produced strong returns with low volatility, global equities appear incrementally more stressed thus far in 2018.  The Global Ultra Focus Fund was unable to sidestep the broad-based decline in stocks and subsequently incurred a modest pullback for the quarter.

Although some degree of profit taking after a strong run in stocks would be logical, it is somewhat surprising that the high growth/high valuation stocks were only modestly impacted, and subsequently continued to outperform their value counterparts in the quarter.  It is Cambiar’s view that growth stocks that have yet to demonstrate consistent earnings/cashflow may be poised to underperform as interest rates normalize in the coming quarters.

Technology and consumer discretionary were the only sectors in the World Index to post a positive return during the quarter.  As discussed in prior commentaries, the Fund’s ability to take more concentrated positions in both individual stocks as well as at the sector level will often result in greater performance variance relative to the index – to the upside (as indicated over longer timeframes), as well as to the downside (as in the first quarter and trailing one year).

Overall sector positioning in the Fund remained relatively unchanged in the quarter; Cambiar continues to maintain an overweight to the more cyclically-geared areas of the market, while underweighting the defensives and financials.  Technology, industrials and energy were the three largest sectors as of quarter-end.  Given their relatively low weight in the index, the Fund’s avoidance of real estate and utilities is unlikely to have a material impact on relative performance; that said, Cambiar’s non-participation is primarily based on a challenging outlook for these sectors in the wake of a rising rate environment. 

An area of strength for the Fund during the quarter was stock performance in the financials sector, led by insurance/reinsurance holding XL Corp.  Cambiar believed that the company was in good position to see an increase in the pricing of their policies after last year’s hurricane season.  We apparently were not alone with this view, as French financial firm AXA SA announced that they would be acquiring XL – at a 33% premium to XL’s share price at the time.  We were obviously pleased with the sharp move higher in the short-term and elected to sell the position soon after the announcement.

One sector where Cambiar was less effective during the quarter was consumer discretionary; the Fund’s investments here include gaming companies and automaker Tata Motors.  Tata was a notable laggard, as the company’s Jaguar Land Rover (JLR) division posted softer sales in the midst of a model changeover.  Given JLR’s significant contribution to overall Tata profits, an anticipated upturn in sales should be positively received by the market.  One bright spot for Tata has been a recovery in profitability within the company’s India market; continued share gains on this front would be an additional positive for the stock.

As of the first quarter, the Global Ultra Focus Fund had a domestic/international allocation split of approximately 43% U.S./57% non-U.S, with Emerging Markets representing approximately 8% of the non-U.S. exposure. This allocation has shifted more toward international in recent years, as we believe valuations are more compelling outside of the U.S, and Cambiar continues to believe that the recovery of many international economies remains 2-3 years behind the U.S. 

Looking Ahead

Global equities delivered a dream year for investors in 2017 – 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 continued tailwind to corporate profits and stock prices.  And while valuations in the aggregate are not inexpensive, multiples are not at the euphoric levels that often accompany the end of a bull market. 

The more volatile market environment that appeared in the first quarter may be the ‘new normal’ for investors.  An uptick in volatility is not necessarily a bad thing, as the corresponding increase in dispersion across sectors can be beneficial to active managers such as Cambiar.  Additionally, the increase in market volatility should not be misconstrued for an imminent decline in stocks, as underlying corporate fundamentals and profits – a key driver of stock prices – continue to meet (or exceeded) market expectations.  And while the low yield environment that has been supportive for equity valuations throughout the current cycle is being slowly wound down, rates still remain low on an absolute basis.  Net-net – Cambiar anticipates that the overall upward trend in equities will remain intact; however, investors should prepare for a bumpier ride relative to the past 18 months.

As discussed in our 4Q commentary, Cambiar believes that security selection will take on increased importance in outperforming one’s assigned index in 2018, in contrast to the ‘set it and forget it’ approach that accompanies passive investing.  While advocating active management is an admittedly self-serving recommendation, we are pleased to see that our investment strategies are off to a good start vs. their respective benchmarks – with the bulk of the excess return a function of security selection. 

 

Disclosure

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 Morningstar Rating does not include any adjustment for sales loads.  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 717 World Large Stock funds over a three year period, 591 funds over a five year period and 340 funds over a ten year period. With respect to these World Large Stock funds, CAMAX received a rating of 2 stars for the three year, 3 stars for the five year period, and 2 stars for the ten year period respectively. Past performance is no guarantee of future results. 

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. 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 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. 

As of 3.31.18, the Cambiar Global Ultra Focus Fund had a 0.0% weighting in AXA, 2.2% in Tata Motors, and 0.0% in XL Group.

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.