About The Strategy…
Managed by investment manager Neuberger Berman, the Neuberger Berman US Multicap Opp A USD1 Acc was launched back in June 2012 with the objective of achieving capital growth for investors through the selection of investments using systematic, sequential research. The fund does so via investing in the US equity market.
The strategy is managed by senior portfolio manager Richard Nackenson, who is supported by Steven Majocha, CFA and Thomas Deutsch, as well as a 5-member support team consisting of 2 research analysts, 1 trader, 1 research trader and 1 portfolio analyst. The investment team is also supported by Neuberger Berman’s centralised global equity research department, allowing them to leverage on their in-house equity research expertise.
To manage the strategy, the investment managers adopt a bottom up research and analysis process to seek out the best ideas and candidates for the portfolio. Focusing on valuations and metrics such as free cash flow (FCF) and return on invested capital (ROIC), the team's investment process consists of an initial screening of the eligible universe of stocks and then conducting in-depth research on the screened results to shortlist a list of best ideas. The shortlisted stocks will then be further scrutinised and analysed to produce a final list of between 30-40 core stocks for the portfolio. The managers' style is thus a relatively high conviction portfolio approach.
The finalised candidates for the portfolio are categorised into three main categories as determined by the investment team. They are special situations, opportunistic and classic investments, and the maximum exposure (as a percentage of the overall portfolio) that the team can have to each category are 40%, 50% and 50% respectively. Classic investments are companies with proven management teams and consistent long-term performance, opportunistic investments are companies that have become inexpensive for a temporary period of time, while the special situations bucket involve companies that are in unique stages of development (like restructurings, spin-offs, new management for example). The team will vary the portfolio's exposure to each of these three main buckets of stocks at their discretion, based on their view of the market environment. The performance of the strategy is benchmarked against the S&P 500 Index.
Chart 1: Three Main Categories Of The Fund's Stock Picks
The investment team will look across the entire spectrum of market capitalisation while scouring for suitable candidates for the three main categories. Thus, not only does the strategy have a decent exposure to the larger-capitalised stocks in the US, it also has exposure to the mid and small-cap segments, hence the name ‘Multi Cap’. The ability and willingness of the managers to invest across all market capitalisations greatly increases the opportunity set available, enabling them to capture more investment opportunities than a generic equity fund which typically gravitates closer to the larger-capitalised stocks in the US market.
Why Are We Picking This Fund?
As explained in our positioning and outlook for 2017, we have 20.0% of our equity exposure to the US equity market (an underweight stance), and with MAPS we also carefully pick suitable products to fit our views of the financial markets and their respective cycles. For our MAPS portfolios, we have chosen the Neuberger Berman US Multicap Opp A USD1 Acc for our allocation to the US equity market at this current juncture.
With the US economy probably in its later stages of the business cycle, it is imperative that investors adopt an active strategy when investing in the States. As the US central bank (the Fed) is on track to tighten monetary policy via gradual interest rate hikes, various sectors will differ in terms of their relative performance as the business cycle progresses, and only an active manager can capture the opportunities that such an environment provides. With expectations also running high for some form of fiscal stimulus by the incoming Trump administration, there is wider dispersion in equity opportunities, making it a great environment for active stock pickers. It is also prudent to note that aggregate equity market valuations appear relatively stretched as well, making passive investing strategies like indexing not an entirely optimal way of having US equity exposure (active managers can avoid or underweight richly valued areas of the market).
The Neuberger Berman US Multicap Opp A USD1 Acc’s mandate would allow the investment team to capture this dispersion in investment opportunities in the US equity market at this juncture. As of end-October 2016, the fund has less than 45% of its portfolio invested in companies that possess a market capitalisation of more than USD 50 billion, with the rest of the portfolio’s stocks invested in the mid and small-cap equity segments.
Chart 2: Portfolio Exposure By Market Capitalisation
The fund's sector exposures also indicate a high degree of active management, vis-à-vis its benchmark, the S&P 500 Index. It is overweight a few cyclical sectors such as the industrials, materials and financials sectors, which may benefit from expansionary fiscal policy as well as specific reforms that are expected to be made by the incoming Trump administration. The fund is also well positioned to benefit from continued momentum in America's domestic economy, and remains cognisant of the risk of rising risk-free rates via the Fed's tightening stance, avoiding yield-sensitive sectors such as telecommunications and utilities. With its exposure to small-cap companies, there is an extra "return-kicker" as small-cap companies can typically grow their earnings at a quicker pace than established larger-capitalised corporations.
Leverage Off Our Product Selection Expertise With MAPS!
With our newly-launched robo-advisory solutions (My Assisted Portfolio Solution “MAPS”), you can now instantly get a well-constructed portfolio that is commensurate with your risk profile. You no longer need to spend as much time as before to analyse the financial markets and research on suitable products – let us do it for you!
With MAPS, you can leverage off our product selection expertise and our views of the markets automatically. The example of our selection of the Neuberger Berman US Multicap Opp A USD1 Acc illustrated above is one such expertise that you could leverage on with MAPS. Due to the dynamic conditions of the global financial markets, we have to remain diligent and vigilant as things can change on a whim. Instead of undertaking this arduous task on your own, why not let us do this for you?