Sub-advisor to the Masters’ Select Equity and Smaller Companies Funds
The opinions and conclusions expressed herein are those of Litman/Gregory Fund Advisors, LLC and Bill D’Alonzo at the time the material is written and may not be reflective of current conditions.
Bill D'Alonzo is a sub-advisor in the Masters’ Select Equity and Smaller Companies funds. He is the lead portfolio manager for the segment of the funds’ assets managed by Friess Associates, LLC (“Friess”). D'Alonzo has been in the investment business for more than 25 years, serves as President of the Brandywine and Brandywine Blue funds, and is Chief Executive Officer and Chief Investment Officer of Friess.
My father Connie D’Alonzo was the hardworking son of an Italian immigrant. He put me and my six siblings through college and many of us through graduate school. In addition to being the Medical Director of the DuPont Company, he operated his own private medical practice on nights and weekends to help make this possible. He also developed a keen interest in small growth stocks and his portfolio did very well.
His enthusiasm for finding the companies of tomorrow and making money in them made an impression on me at a young age. Perhaps even more important, his work ethic taught me that there is no such thing as a free lunch – especially when it comes to investing in the stock market.
I really can’t take credit for the unique approach we bring to investing in growth stocks. Our firm’s founder and my mentor, Foster Friess, initially had the vision to focus on companies rapidly growing their earnings back in 1974, a time when most investors were focused on steady income streams from bonds or stocks with big dividends. After witnessing periods of exaggerated speculation in the stock market, he also demanded that target companies trade at reasonable prices. Over the years, we’ve continued to execute this strategy while building our competitive edge through a grassroots research effort.
Our firm’s guiding motto is: “Never invest in the stock market – invest in individual businesses.” Our investment strategy is based on the premise that individual-company fundamentals determine stock prices over the long haul.
All of the portfolios we manage follow the same time-tested investment strategy, which emphasizes each company’s ability to influence its share-price performance through earnings growth. We perform bottom-up research to identify companies with earnings-growth potential that has yet to be recognized by the broader investment community. To maximize upside potential and mitigate downside risk, we focus on the rapidly growing companies that sell at reasonable multiples of earnings estimates.
Reflecting our active, individual-company approach, we manage portfolios one company at a time without regard to the makeup of market indexes. Our goal is to outperform the indexes, not to mimic them.
First and foremost, my parents instilled in me a strong sense of family and the importance of upholding high ethical values. They both truly believed that if you were not going to do something well, it was better left totally undone.
These lessons have carried over to the investment side of things. First, our firm is structured in a way that embraces family values and commitments as a primary responsibility.
Second, as the arbitrator of the entire research process, I ensure that each portfolio we build is the result of the consistent execution of our company-by-company investment approach. This has been a key to the success of our shareholders and clients.
We don’t change our stripes to suit the environment. We buy companies that we believe will perform best based on their individual merits irrespective of broader-market conditions. For example, we don’t invest based on interest rate forecasts or on a guess as to how investor sentiment might shift. Rallies that take place without the underlying fundamentals to warrant them ultimately prove to be short-lived.
Finally, I’m surrounding by a talented and dedicated group of folks here at Friess Associates.
Friess Associates’ team approach to research uses small, dynamic groups of people to manage an allocation of the firm’s total assets. Research professionals on seven teams are responsible for finding companies for the Masters’ Select portfolio. This puts us at odds with the traditional star approach, where one portfolio manager is solely responsible for all the names in the portfolio.
Our teams cooperate, unlike firms that pit analysts against each other. I preside over the process, ensuring cooperation and compliance with our disciplined investment approach. At my discretion, assets move from team to team, depending on idea generation and related funding needs.
No one analyst or team is responsible for the Masters’ Select portfolio nor any individual portfolio we build. More than 20 research professionals, complemented by additional external research consultants, conduct as many as 1,000 interviews a week with company managements, competitors, customers and suppliers to glean insights on existing and potential holdings. Each research team’s best ideas are then filtered into the eligible portfolios based on their investment parameters.
Company managements, their competitors, customers and suppliers are important sources of information for both existing and potential holdings. Our research work on any given company is market-cap indiscriminate, so we interview small-cap suppliers, mid-cap vendors and other companies up and down each company’s “food chain.” This often alerts us to trends we might otherwise miss if we maintained a narrow focus on one particular market-cap category.
We also comb through financial information, including 10-Qs and 10Ks filed with regulators, checking every statement and footnote. We analyze accounting, currency exposure and a list of other factors which can influence earnings to make sure the assumptions we make after further investigation remain sound.
When we build concentrated portfolios like we do for Masters’ Select Equity and Masters’ Select Smaller Companies, I actively engage with our research team to determine which companies we’ve isolated are most appropriate given the objectives of these portfolios. The process we employ is the same regardless of whether we’re building a mutual fund or an individually managed portfolio of eight to 15 stocks. We look for companies experiencing rapid earnings growth that sell at reasonable multiples of earnings estimates, and cull that roster further by focusing on companies for which our research identifies earnings upside in excess of Wall Street expectations.
Neither the information contained herein or the opinions expressed shall be construed as an offer to sell or a solicitation to buy any securities mentioned herein. Click here to view the most recent portfolio holdings of the Masters’ Select Equity Fund, and here for the portfolio holdings of the Masters’ Select Smaller Companies Fund.
The fund may invest in foreign securities, which exposes investors to economic, political and market risks and fluctuations in foreign currencies. The fund will invest in the securities of small companies, which subjects investors to additional risks, including security price volatility and less liquidity than investing in larger companies.
To obtain a current prospectus for the Masters’ Select Funds at no charge, please click here or call 1-800-960-0188. The prospectus contains more complete information with respect to the risks, costs and expenses of investing in the Funds. Please read it carefully before investing.
 For industry terms and definitions, click here.
|
