Report Release Date: 3 Aug 2010
Analyst: Chetan Modi
Morningstar Opinion
Perkins US Strategic Value has merit but its excessive cost is a fly in the ointment.
This fund features an experienced duo at the helm in Tom Perkins and Jeff Kautz—the two share 46 years’ investment experience. Perkins and Kautz took charge of this fund in September 2003, but Perkins has been managing its US sibling, Perkins US Mid Cap Value, since August 1998. Perkins and Kautz also benefit from the support of a stable team of nine analysts with an average of nine years’ experience.
The duo use a value-based strategy. They search across the market-cap scale for undervalued companies using screens that highlight stocks trading at low relative and absolute P/B, P/C, and P/E values. The managers are also interested in those trading close to their 52-week lows, beaten-up growth stories, and out-of-favour industries. However, they avoid highly indebted companies and prefer high tangible book values on the balance sheet. The analysts are then charged with establishing price targets for the companies they are interested in. They set a conservative downside price target and margin of safety by modeling a drop in revenues and compressed margins using previous trough or recession levels. The potential upside of a stock is also measured by normalising earnings and comparing valuations with previous normalised levels.
The approach leads to an eclectic mix of shares. Although the fund is usually dominated by value and core stocks, the managers are also willing to buy out-of-favour growth companies. In Sept. 2009, the fund changed its benchmark from the Russell Mid Cap to the Russell 3000 Value, a larger-cap index. We now consider it an all-cap fund with a large-cap bias, and the firm says the large-cap tilt will remain intact. Investors can thus find giant caps such as Wal-Mart rubbing shoulders with smaller companies like Potlatch Corporation. In the past, the fund had been more mid-cap oriented, but the change isn’t a big concern—the managers still have plenty of flexibility to dip down the cap ladder, and even in the past they were willing to play in large caps.
They have used this flexibility well for investors: The A USD shares have outperformed the US Mid-Cap Equity and US Large-Cap Value Equity category averages handily over the past five years. (Investors should note that the GBP and EUR classes are currency-hedged and lose the diversification benefit of USD exposure—their performance therefore differs accordingly.) However, that magnitude of outperformance could have been materially wider if the fund wasn’t so expensive. The current TER of 2.53% is a very high price to pay for a US equity fund; it represents an 79 basis-point premium on the median fund in its category. We still like this fund enough to award it our Superior rating, but it should be cheaper.
To learn more about the fund, please click here.
To read the summary report, please click here.
