Chris Hart, CFA, manages a global equity strategy following the “Three Circles” investment philosophy for Robeco Boston Partners, . Hart manages the portfolio searching for opportunity from an unconstrained perspective, looking to take advantage of valuation anomalies in a global environment. “When we apply the investment philosophy of the three circles, to a universe of 10,000 securities, opportunities multiply making it a very powerful tool” he says.
This strategy is characterized by a high consistency in its performance, standing at the top of its category. The trick, as noted by Hart, is to be rigorous with the analysis and diversification of the ideas obtained when combining three concepts which contribute a little of each investment style, “the circle that refers to valuation is more value, that of the sound fundamentals may be described as core, while the momentum serves factors closer to growth”.
To capitalize on opportunities or anomalies in the market, Hart says it is necessary to invest by country, sector, currency, market capitalization, etc. without restrictions, taking note only in selecting good companies.
“One example is our overweight position in the French market,” Hart says. “We have a number of French small and midcap companies in the portfolio, they are all very well managed, able to make money in any market environment, and they also present attractive valuations. It doesn’t worry us if the French GDP does not grow.” At the other extreme is the negligible exposure to European banks which the strategy has held during the last seven years. “Overall, it is an undercapitalized sector operating in an environment of low growth in lending activity. In addition, valuations in terms of P/BV are misleading because if we incorporate actual capital needs of European banks, we see that they are not cheap. “
This strategy, which incorporates emerging markets in its universe though “its weight is very low because well-managed companies tend to be expensive”, now has 33% of the portfolio in Europe (including UK) and around 50 % in USA “The weight in Europe has increased by around 10 percentage points from the third quarter of 2014, to the detriment of exposure to the US, which we’ve cut on valuation grounds.” Japan, “a market in which we have always been invested, mainly through small and midcaps,” also currently weighs a bit more in the strategy’s portfolio.
This is Part 3 of a Three part interview to Robeco Boston Partners US and Global Equity Team, published in Spanish in Funds Society print magazine (April 2015)
*Market ratios are calculated as of February 2015