James Moffett, lead manager of the $148-million UMB Scout Stock Fund (UMBSX), first takes a top-down approach when deciding where to invest. After looking at regional economic and market conditions, he uses a classic bottom-up GARP methodology to find companies that are likely to boost cash flow, among other parameters.
The fund gained 15.4% for the one-year period through November, compared with a 16.4% rise by the average large-cap value portfolio. For the three-year period through November, the fund dropped 3.5%, annualized, versus a 0.5% slide by the peer group.
James A. Reed serves as the fund’s assistant manager.
The Full Interview:
S&P: Are you bottom-up investors?
MOFFETT: No, we start out from the top-down by looking at economic and market conditions. We then decide to overweight or underweight certain sectors relative to the industry allocations in our benchmark, the S&P 500-stock index. However, in no way are we a closet index fund.
S&P: Once you decide on certain sectors, how do pick individual stocks?
MOFFETT: That is a bottom-up process — we pick companies which are likely to increase their earnings, cash flow and dividends. We also evaluate such parameters as five-year historical earnings growth, sales growth, consistency of earnings growth, return on equity, absolute price-to-earnings, and relative price-to-earnings.
We focus entirely on large-cap stocks — as of September 30, the fund’s median market cap was $33.1 billion, compared with $8.0 billion for the S&P 500-stock index.
S&P: Would you describe yourself as growth or value investors?
MOFFETT: We are growth-at-a-reasonable-price investors. Although the screens we use are primarily growth screens, we focus on valuations.
S&P: In October 2003, S&P re-classified this fund as large-cap blend from large-cap value. Do you agree with this re-classification?
MOFFETT: Yes, I think that is an accurate description.
S&P: What are your largest sectors?
MOFFETT: As of September 30, the fund’s largest sectors were information technology, 16% (versus 17% for the S&P 500); health care, 15% (14%); finance, 15% (21%); and consumer discretionary, 10% (11%).
We are currently very bullish about technology and industrial stocks because we’re focusing on the rebounding U.S. economy.