This is part of a series of extended profiles of the 2014 Separately Managed Account Managers of the Year. Briefer profiles and an overview of the 10th annual SMA Managers of the Year can be found in Investment Advisor's July 2014 cover story. Additional reporting and video interviews of the winning managers can be found on our 2014 SMA Managers of the Year home page.
When it comes to the global financial markets, Jennifer Dunne, portfolio manager and senior investment analyst for Denver-based Cambiar Investors’ International ADR strategy, winner of the SMA Manager of the Year in the international or global equity category, believes that the only true constant is change.
That’s why the name “Cambiar,” which in Spanish means “to change,” is a perfect fit for a firm that since the 1970s has been investing successfully in the international markets and continues to deliver consistent and superior returns to its clients over different market cycles. It does so by strictly adhering to a single investment discipline that’s centered on looking worldwide for high-quality companies that offer relative value.
“We’re looking for compressed valuations—for companies that are trading in the lower quartile of their long-term historical range—but we’re also looking for high-quality companies,” Dunne said.
That means Cambiar seeks out companies with strong management teams that don’t have high debt loads; that have strong balance sheets; that are not undercapitalized; and that have stellar business models that can consistently get them through different market cycles.
There are companies that fit those criteria throughout the world, of course, but the world is also a vast place, so it’s Cambiar’s choice to divide the globe up among the members of its investment team by sector, rather than geography.
“This approach lets us do a deep dive and makes us truly aware of companies’ competitive advantages regardless of their geographic domicile or capitalization,” Dunne said.
This approach also best utilizes the experience and skills of each member on the team, including President and CIO Brian Barish, and leverages Cambiar’s collective intellectual property to its fullest. It’s also the most effective way, Dunne said, to find companies across the globe that fit that high-quality/relative-value equation, and get a sense of their potential in the long term.
Energy is Dunne’s area of expertise, and she has about 15 or 20 names on which she focuses. From that list, she said, “I can whittle things down further to see which ones are high-quality and where value is compressed, and those will go into the portfolio.”
The international portfolio only has about 40 or 50 names in it at any one time, and it has a 50% turnover, which means the team is looking for about 20 new names a year.
“That’s just a handful of names for an analyst to find around the world and allows for each analyst to have an in-depth understanding of those names and of the sectors they follow,” Dunne said.
The Upside and Downside
The firm is benchmark-agnostic and because it runs such concentrated portfolios, runs a 50% upside target for its holdings. Individual positions are weighted at 2% (they’re sold when a stock reaches its price target), although an analyst can introduce a new holding at a 3% weighting.
However, when it comes to the downside, Cambiar holds its staff to extremely strict standards.
Any portfolio holding that falls below Cambiar’s 20% downside target will be the subject of an intense, detailed discussion on whether or not it should remain in the portfolio. During that discussion, if an analyst can make a strong enough case to keep the holding despite its poor performance, then the firm may well keep it.
But “you only get one chance to bring an underperformer back to portfolio weight. You just get the one shot and then we must see that it performs,” Dunne said.
This is a tight and tough discipline to abide by, she said, but every Cambiar team member nevertheless is willing to play by the same rules, “and no one asks for an exception.”
That’s mainly due to the fact that Cambiar is a 100% employee-owned firm, and almost everyone is a partner in the company.
“We’re all paid to buy equity in the firm, and this aligns our interests directly with those of our clients,” Dunne said.
Regardless of their vested interests in the company, though, the Cambiar team also knows their stuff, so it’s fair to say that their margin of error is probably negligible.
“We may be based in Denver, but we travel a great deal because we believe it’s important that as international investors we get on the road and out into the world,” Dunne said. “We think it’s important to meet with companies on their own turf. These meetings are extremely fruitful.”
This is the first in a series of extended profiles of the 2014 Separately Managed Account Managers of the Year. Briefer profiles and an overview of the 10th annual SMA Managers of the Year can be found in Investment Advisor's July 2014 cover story. Additional reporting and video interviews of the winning managers can be found on our 2014 SMA Managers of the Year home page.