Touchstone’s Steve Graziano on Martinis, Growth and the Case for Subadvising

What’s unique about Touchstone versus most managers who run their own money is that we hire experts in their respective asset classes. We hire people who only specialize in those classes. A good example is our large-cap growth fund that is subadvised. They run close to $20 billion in large-cap growth in the very same style I hired them to run my fund. That’s all they do. Contrast that with Pioneer; when we ran a fund, we needed to hire a manager. They need to come and prove they work with the fund, and after three years or so, if they’ve proven their work, you have something to sell. That’s not what we have to offer. What we have to offer is a portal to money managers who specialize in running money for large institutions and endowments; money managers who pass the hurdle and screens of institutional consultants who are generally the gatekeepers.

So you’re managing the managers?

That’s exactly right. We have a team of three, soon to be four, people whose only job is to review the performance of our existing managers and to bring new managers into the fold.

What are you telling your clients about the next year? How are you positioning yourself given all that’s happening in Europe and elsewhere in the world?

You don’t position yourself in a year. It takes a long-term plan to get you in place. One of the advantages of our system is we can bring product to market relatively quickly. What we focused on in my first year here is setting the table with product to be sure that all of our managers and our value proposition held water. When you look at our lineup, if there is a fund that is underperforming, it is explainable because the markets had shifted away from their style, not because they had done a poor job. So we did do some housekeeping to replace several managers; we did close several funds. And we have added to our lineup to be sure that we had product that could address any market cycle that came our way.

So back to what you asked me originally: What are you doing to position our funds in the coming year? We are focused on premium yield. Dividend yield strategies are products right for the time. People are looking for income, and we’re talking about our high-yield strategies.