Quick Take: Before examining a company’s top and bottom lines, the managers of AmSouth Mutual Fds Select Equity/A (ASECX) check its position within its industry.
Peter Jankovskis, who oversees the portfolio with Neil Wright and Janna Sampson, wants companies that lead or dominate their businesses, and that are safeguarded by roadblocks like strong brand names. The trio then look for reasonably priced stocks of growing companies.
The $48 million fund has displayed less volatility than the competition while delivering better returns. For the three-year period ended in March, the fund returned an average annualized 6.5%, versus a loss of 14.6% for its large-cap blend peers.
The Full Interview:
Not many companies meet the criteria needed to gain entry to the AmSouth Mutual Fds Select Equity/A (ASECX), and only a handful of those make their way into the portfolio.
Peter Jankovskis, and the other two managers who oversee the fund, start by focusing on businesses with what they call “market power,” that is, leading or dominant industry positions combined with barriers to entry, like patents, for example, that protect them from rivals.
Next, the team screens for stocks that are undervalued, looking for shares sporting a price-to-earnings ratio near or slightly less than that of the Standard & Poor’s 500-stock index.
“The one thing that really stands out about these companies is that they have very stable earnings growth,” Jankovskis says. “They tend to crank out good results year-in and year-out, and have very steady cash flows. And in the long run, they tend to have earnings growth that is just a bit higher than the market.”
The universe of stocks the managers hunt in contains only about 150 mostly large-cap stocks, of which just 18-25 wind up in the fund, says Jankovskis, director of research at OakBrook Investments LLC of Lisle, Ill., the fund’s investment adviser.
As a typical holding, he cites Sysco Corp (SYY), the giant food distributor, which has been in the fund since its inception in 1998, and currently holds seventh place in the portfolio. Sysco’s “size gives them a tremendous advantage against their competitors,” enabling them to negotiate better deals with suppliers, and to operate warehouses more efficiently than similar smaller companies, Jankovskis says.