The FSA Spy market buzz – 20 December 2024
Merry Christmas! The Year in Funds; Nuclear; Mag-7; Small Caps; Robotics; Bitcoin; Large Cap Growth; US Manufacturing; AI; Big Data; Lithium Batteries; Emerging Markets; Warfare and much more.
The commonality of the two funds is that they are both growth oriented, but they have different approaches, according Genderen.
The T Rowe Price strategy has the flexibility to invest in all types of stocks.
“The approach of the T Rowe Price is centred around change. Change can be growth, and change can also be found in a way that restructuring of the company is taking place,” he said.
About 35% of the T Rowe Price fund’s portfolio is normally invested in typical growth stocks, and the remaining portfolio will be in vested in all types of stocks, including these restructuring stories.
One of the major differences in investment approach between the two funds is that the T Rowe Price fund will invest in small- and mid-caps, but to a far less extent than the FSSA fund, which has a much larger exposure to these sectors and even sometimes to the micro-cap segment of the market, according to Genderen.
“Therefore, the T Rowe Price fund is in Morningstar’s large-cap category while the FSSA fund is in the flexible-cap category,” he said.
On the portfolio level, Genderen pointed out that the T Rowe Price fund is more “diversified” and more balanced. The FSSA fund is clearly more concentrated, and a “little bit more punchy”.
Archibald Ciganer, the manager of the T Rowe Price fund, has implemented his own approach after taking over this strategy in December 2013. Around three quarters of the portfolio’s assets are invested in companies that can achieve and sustain above-average, long-term earnings and cash flow growth through the economic cycle.
“This will typically result in a portfolio that is biased to growth stocks; the remainder of the portfolio is invested in transformational companies,” said Genderen.
In stock selection, Ciganer relies on the research by the firm’s analysts covering Japanese equities; a successful leverage on their work is a critical element in this process, as they are not dedicated to this strategy and their research is not specifically tailored to its growth-oriented approach, Genderen said.
The FSSA fund’s significant exposure to small- and mid-cap stocks can lead to more volatility, he said, as small and mid- caps are, by general, more risky than large- caps, but he pointed out that it could be a smart choice as long as the manager has an edge there.
“I think that for Japan, it can be an edge to have people on the ground. So, having analysts based in Japan, who speaks Japanese, is advantage especially in the small- cap segment, which is less covered by analysts,” said Genderen.
The FSSA strategy employs a robust bottom-up approach, Genderen said. The team seeks compound growers operating in industries with high barriers to entry and limited regulatory oversight, with the ability to deliver strong and stable returns on capital. But the most important factor is management: FSSA prefers management teams that act with integrity, are long-term oriented, and demonstrate an ability to effectively allocate capital.
The team carefully considers how management has treated stakeholders, especially during periods of distress. The team focuses on delivering absolute, not relative, returns. It defines risk as losing money in real terms rather than short-term benchmark or peer group underperformance.
Fund characteristics
Sector allocation:
FSSA |
T Rowe Price |
|
Communication services |
0.62% |
12.04% |
Consumer cyclical |
6.1% |
13.26% |
Consumer defensive |
8.81% |
1.53% |
Energy |
0.00% |
0.00% |
Financials Services |
2.78% |
0.25% |
Healthcare |
14.1% |
14.36% |
Industrials |
30.98% |
32.73% |
Technology |
32.16% |
16.96% |
Materials |
4.45% |
6.79% |
Real Estate |
0.00% |
2.08% |
Top 10 holdings:
FSSA |
weighting |
T Rowe Price |
weighting |
Benefit One Inc |
6.97% |
Keyence Corp |
5.41% |
Recruit Hldgs |
6.69% |
Hoshizaki Corp |
4.74% |
Keyence Corp |
4.84% |
Suzuki Motor |
4.58% |
Tokyo Electron |
4.01% |
Daikin Industries |
3.62% |
Shin-Etsu Chemical |
4.01% |
Nippon Telegraph& Telephone |
3.36% |
Gmo Payment Gateway |
3.93% |
Softbank |
3.25% |
Shift Inc |
3.73% |
Recruit Hldgs |
3.17% |
Monotaro Co. |
3.50% |
Mitsubishi Electric |
3.11% |
Olympus Corp |
3.36% |
Daio Paper |
3.11% |
Sony Group |
3.33% |
SMS Co |
2.62% |
Merry Christmas! The Year in Funds; Nuclear; Mag-7; Small Caps; Robotics; Bitcoin; Large Cap Growth; US Manufacturing; AI; Big Data; Lithium Batteries; Emerging Markets; Warfare and much more.
Part of the Mark Allen Group.