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Large Cap |
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At a Glance
- Primary Benchmark: Russell 1000® Index
- Universe: The Large Cap Core Equity investment universe includes all U.S.-listed stocks and ADRs over $1 billion in market capitalization.
- We define attractive valuation on a sector-by-sector basis and identify superior opportunities through fundamental research.
- Our portfolios are well-diversified and carefully structured with regard to economic sensitivity.
Objective
We seek to achieve long-term capital appreciation by investing in stocks of selected U.S.-listed companies with attractive valuations. We seek to outperform the Russell 1000 Index by 2%, on an average annual basis, over a 3-5 year period.Typical Investment Guidelines
Allocation Ranges for Selected Countries and Curriencies*| FACTOR | GUIDELINE | |
| Number of Holdings | 55-70 | |
| Maximum Stock Weighting | 5% | |
| Maximum Industry Weighting | 15% | |
| Maximum Sector Weighting | 30% | |
| Maximum ADR Exposure | 15% |
Quantitative Screens
The Large Cap Core Equity investment universe includes all U.S.-listed stocks and ADRs with a market capitalization greater than $1 billion. We use two primary sorting methods to get to our focus universe.First, we focus on the 100 largest names in the Russell 1000 Index so that we have an opinion on all the major index constituents. This group typically includes all companies with an index weighting of at least 0.20%. This step ensures that we know why we own or don't own companies that are likely to have an impact on index performance and can overweight or underweight them appropriately.
Second, we run relative value screens on the entire universe of roughly 1,800 names with capitalizations greater than $1 billion. These screens are customized by sector to account for the fact that each economic sector behaves differently and has different drivers and different valuation triggers. These screens produce rankings based upon a combination of factors that have statistically shown to be good indicators of value for each sector, actively eliminating factors that have not shown statistically positive predictive capability. The screens have been created to identify those stocks which are undervalued not only relative to the current market, but also relative to the stock's own trading history. We then focus our research efforts on the top quartile of attractive names within each sector.
Fundamental Analysis
Through fundamental analysis, we seek to understand the reasons a stock is undervalued or out-of-favor and to identify those companies most likely to return to normal valuation levels and profitability. Conclusions are based on a company's position in the earnings cycle, financial condition, competitive position and management. In addition, we focus on long-term and cyclical industry trends in order to identify and measure the risks associated with a company's business.Sector Analysis
Those stocks which are truly attractive on a sector-by-sector basis are then purchased for portfolios. Weightings of individual securities are determined by our desire to broadly match the sector weighting of the Russell 1000 Index and our conviction about the security. Portfolios typically hold 55-70 stocks.Sell Discipline
Stocks are reviewed for sale when they no longer display characteristics historically proven to lead to outperformance within the sector. Stocks may be sold when:- The company's valuation rank within its sector drops below the 50% level;
- We determine the stock's ability to return to normal valuation has deteriorated, or
- Another stock within the same sector displays a more attractive risk/reward profile. Stock-against-stock competition creates approximately 80% of selling events in the portfolio.
Representative Portfolio Characteristics (as of 6/30/2008)*
| CHARACTERISTICS | BRANDYWINE | R1000 |
| Price/Earnings | 13.3 | 15.0 |
| Price/Book | 2.0 | 2.4 |
| Price/Cash Flow | 8.2 | 9.6 |
| Dividend Yield (%) | 2.2 | 2.1 |
| Avg. Market Cap ($B) | 82.7 | 79.0 |
| Holdings | 52 | 999 |
| Turnover (% last 12 months) | 21.6 | - |
Top Ten Holdings (as of 6/30/2008)*
| COMPANY | WEIGHT (%) | COMPANY | WEIGHT (%) |
| Nabors | 5.6 | Seagate Technology | 3.2 |
| ConocoPhillips | 5.2 | Chevron | 3.2 |
| Microsoft | 4.8 | Johnson & Johnson | 3.0 |
| Applied Materials | 3.9 | AT&T | 2.9 |
| Genzyme | 3.8 | Williams | 2.8 |
* Supplemental Information. Data as of 6/30/2008. R1000 = Russell 1000 Index.
Please refer to our GIPS compliant presentation, which includes performance footnotes, fee schedules, index descriptions and disclosures. The data represent the aggregate characteristics of all securities held in the representative portfolio, an actual commission account not subject to taxation. Data is obtained from FactSet and Russell. It should not be assumed that investments in any top ten holdings listed were or will prove to be profitable. Top ten holdings may no longer be held in client portfolios. The holdings of any particular account may vary based on any investment restrictions applicable to the account. This information is for illustrative purposes only, is subject to change at any time and should not be considered investment advice or a recommendation to buy or sell any particular security. In accordance with Rule 206(4)-1 under the Investment Advisors Act of 1940, upon request, we will furnish you with a list of all recommendations made by Brandywine within the immediately preceding twelve months. There is no guarantee that holding securities with relatively high (or low) price-to-earnings, price-to-book, or price-to-cash flow will cause the portfolio to outperform its benchmark or index.
The Russell 1000® Index is a trademark of the Frank Russell Company.
Russel™ is a trademark of the Frank Russell Company.
Representative Sector Weights (as of 6/30/2008)*
* Supplemental Information. Data as of 6/30/2008. R1000 = Russell 1000 Index.
The data represent the aggregate characteristics of all securities held in the representative portfolio, an actual commission account not subject to taxation. Data is obtained from FactSet and Russell. Sector weights are included for informational purposes only and should not be perceived as investment recommendations. It should not be assumed that investments in any sectors listed were or will prove to be profitable. The sector weights of any particular account may vary based on any investment restrictions applicable to the account.
The Russell 1000® Index is a trademark of the Frank Russell Company.
Russel™ is a trademark of the Frank Russell Company.
Quarterly Portfolio Manager Commentary (as of 6/30/2008)
This was a quarter where our sector decisions paid off respectably, as our over- and under-weightings added value in 8 out of 10 cases. We are further pleased that the three best results in that regard came from energy, financials, and technology - the areas where we have the most conviction about weighting decisions. There are points in the economic cycle where sector decisions will matter much less, but this is not one of those environments, and we will continue to seek to add value in these decisions. Pure stock-picking was more of a mixed bag. Our four best stocks were in energy, our four worst were in financials. Obviously, we have to own something in financials, but the damage is so widespread and varies so much from quarter-to-quarter that is challenging to avoid the laggards.
We are not panicked, as we feel that the portfolio is structured well for both defensiveness and a market recovery. That may sound contradictory, but we believe our holdings should do well when the market turns and will avoid most of the largest problems in the meantime. While we are confident that the investment philosophy is long-term, patient, and understanding of the cyclical nature of markets, we all share a strong preference for markets that are moving upwards. We continue, as we have said before, to hope for a better market and better economy for the typical world citizen. Better times will return, as they always do, but the timing of the stabilization of the markets remains uncertain.
You should not assume that investments or strategies discussed in this commentary were or will be profitable, or that the investment decisions Brandywine Global makes in the future will be profitable or equal to the investment performance discussed in this commentary. The data and information presented in a Brandywine Global commentary is believed to be accurate and reliable as of the date recorded. Brandywine Global will not undertake to update the data and information presented at a later date. This commentary may not reflect the current views of the featured speaker and may not reflect current or sudden market activity.
Portfolio Team
Patrick S. Kaser, CFA
Portfolio Manager
Patrick is a member of the Large Cap Value Equity team. He serves as lead portfolio manager for the Large Cap Core Equity strategy and provides research coverage for the Fundamental Large Cap Value strategy. Patrick is responsible for researching the healthcare and insurance sectors, contributing insights and stock recommendations. He joined the firm in 1998. Before becoming a portfolio manager, Patrick worked for the firm as a senior marketing associate (1998-2000). He was also with Dean Witter as an account executive (1996-1997). Patrick is a CFA charterholder and earned an M.B.A. in Finance from the University of Delaware and a B.A. in Political Science from Arizona State University. He is a member of the CFA Society of Philadelphia and has been quoted in The Wall Street Journal, BusinessWeek, and The Washington Post and has appeared on Bloomberg television and radio.
David A. Tattersall
Equity Head Trader
Dave is the head trader for Brandywine Global's equity portfolios. Prior to being appointed to this position in March 2007, he served as lead equity trader for the firm's Diversified Value Equity portfolios in addition to providing support to the Absolute Value Equity portfolio teams. Dave's previous experience with the firm includes serving as joint trader for the International Value Equity portfolios, primary trader for the Wealth Management Group channel, and backup trader for Absolute Value Equity and Large Cap Value Equity portfolios. He joined the firm in 2000, bringing with him 15 years of industry experience. Previously, Dave was with OTA Limited Partnership, a full-service institutional broker/dealer, as a financial analyst/trader (1989-2000); First Federal Savings Bank as a senior accountant (1987-1989), and Beneficial Mortgage Corporation as the loan accounting manager (1985-1987). Dave earned a B.A. in Accounting from Pennsylvania State University.
Donna Van Vlack
Vice President, Equity Trader
Donna is the lead trader for the firm's Large Cap Value Equity portfolios. Donna joined the firm in 1996, bringing with her 19 years of industry experience. Previously, she was a trader with Caxton Corporation (1995); vice president and head trader with Chesapeake Partners Management Company (1993-1995); vice president with UBS Securities, Inc. (1991-1993); vice president with Dillon, Read & Co. (1986-1991); vice president and head of trading with Avatar Associates (1982-1985), and a trader with Soros Fund Management (1978-1981). Donna earned a B.A. in History and Political Science from Wellesley College.