Value Equity Management
Diversified Large Cap Value Equity
Our Diversified Large Cap Value Equity strategy is a combination of our large cap value equity and mid cap value equity strategies. We use the same value philosophy but choose from stocks in both the mid and large capitalization sectors of the market. We construct portfolios of individual stocks that reflect all three value characteristics: price/earnings and price/book ratios below the market, and dividend yields above the market. The result is a well diversified portfolio. This strategy provides a measure of protection in down markets, helping to preserve assets. In periods of economic recovery and rising equity markets, profitability and earnings growth are rewarded by P/E expansion and the generation of excess returns.
|Asset Class||U.S. Equity|
|Portfolio Benchmark:||Russell 1000® Value Index|
|Portfolio Assets||$5,495 MM as of 3/31/2017|
|Mutual Fund||John Hancock Value Equity Fund: JVEAX ‡|
Investment Approach: Our approach to the equity market is based on the underlying philosophy that markets are inefficient. These inefficiencies can best be exploited through adherence to a value-oriented investment process dedicated to the selection of securities on a bottom-up basis. We do not attempt to time the market or rotate in and out of broad market sectors, as we believe it is difficult, if not impossible, to add incremental value on a consistent basis by market timing. We stay fully invested with a defensive, conservative orientation based on our belief that superior returns can be achieved while taking below average risks. We implement this strategy by constructing portfolios of individual stocks that reflect all three value characteristics; price/earnings and price/book ratios below the market and dividend yields above the market (S&P 500). While we are exacting in our definition of value, we are equally demanding in our pursuit of quality companies. We look at stocks for what they are - an ownership interest in a business - and never want to own an interest in a company that has a deteriorating business. We seek companies with profitability and earnings growth greater than the market.
Our strategy of emphasizing low price/book ratios, as well as high dividend yields, provides a measure of protection in down markets, helping to preserve assets. Experience has also taught us that the stock market will eventually capitalize above average earnings growth at a higher P/E ratio. In periods of economic recovery and rising equity markets, profitability and earnings growth are rewarded by P/E expansion and the generation of excess returns.
Process: We begin by looking at a stock's price relative to its (1) current earnings level, (2) current tangible book value, and (3) stated dividend, identifying stocks with a low P/E, low price to book and high yield. We then make five-year forecasts for ROE, book value, dividends and earnings per share. Each stock must look attractive on our Dividend Discount and Relative Return models before it can be purchased. These two valuation models, which instill discipline in our final stock selection process, are also used to accomplish the same on the sell side. Once placed in a portfolio, a stock is monitored using the two valuation models. The models are updated on a weekly basis, at a minimum. When a stock becomes fairly valued on either of the models, the liquidation process begins. We do not try to judge when the holding might reach a speculative level of overvaluation.
Portfolio Construction: Portfolios are built from the bottom up. We seek to build equally weighted portfolios consisting of 70-80 stocks. Stocks are held for an average of two to three years, resulting in an average annual portfolio turnover of 25%-30%. We will not take more than a 15% weighting, at cost, in any industry group. Sector weightings are a residual of our bottom-up stock selection process and may vary widely in comparison to both the S&P 500 and Russell 1000 Indices. We remain "fully invested" with a typical cash position of less than 3%.
Portfolio Characteristics as of 3/31/2017
|P/E Ratio (Trailing 12 Months)||18.6||19.0|
|Weighted Average Market Cap ($B)||98.9||120.9|
|Median Market Cap ($B)||41.1||8.6|
|Top Holdings as of 3/31/2017|
|Bank of America||2.2%|
|Royal Caribbean Cruises||1.7%|
|Sector Weightings as of 3/31/2017|
|Performance as of 3/31/2017|
|Annualized Portfolio Returns (%)|
*3 Month returns are not annualized.
Barrow Hanley's returns are shown before investment management fees and custody expenses. Index returns do not reflect transaction costs, management fees, and other expenses. Performance is expressed in U.S. currency. Holdings and statistics are presented as supplemental information to the BHMS Diversified Large Cap Value composite. A full disclosure presentation may be accessed from the link above. Barrow, Hanley, Mewhinney & Strauss, LLC claims compliance with the Global Investment Performance Standards (GIPS®).
All institutional product information has been provided by Barrow, Hanley, Mewhinney & Strauss, LLC. Any questions about this material or requests for additional information may be made directly to the firm from the "Contact Us" link above.
Mutual Fund Disclosure
Investing involves risk including loss of principal. For more information pertaining to the mutual fund products above, including investment objectives, risks, charges and expenses, obtain a prospectus. Read the prospectus carefully before investing or sending money. Neither this material nor any accompanying oral presentation or remarks by a representative of the distributors is intended to constitute a recommendation of the funds or a determination of suitability for any investor.
‡ John Hancock Value Equity Fund is distributed by John Hancock Funds, LLC, which is not affiliated with Barrow, Hanley, Mewhinney & Strauss, LLC or any other affiliate. For more information on the Fund and to obtain a prospectus, please visit jhinvestments.com or contact John Hancock at 1-800-225-5291.