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April 3, 2008 - Effective today Sands Capital Management (Sands) and Turner Investment Partners (Turner) are being added as new sub-advisors in the Masters’ Select Funds. Sands will replace TCW Investment Management Company (TCW) on Masters’ Select Focused Opportunities, while TCW’s allocation in Masters’ Select Equity will be split evenly between Sands and Turner.
The catalyst behind our removal of TCW was the unexpected resignation of co-manager Steve Burlingame in February. Craig Blum, the other co-manager, became the sole portfolio manager at that time. Although we continue to think very highly of Blum, Burlingame’s departure was the third significant departure from the TCW team since we hired them to run a portion of Masters’ Select Equity Fund in October of 2003. This string of departures undermines the high level of confidence that we must have to hire and retain a Masters’ Select manager. TCW managed 20% of Masters’ Select Equity and 33% of Masters’ Select Focused Opportunities.
Sands and Turner are growth managers we have known and respected for a number of years. We did additional work on both firms during the past six weeks as we carefully considered them for Masters’. Both have experience managing relatively concentrated portfolios. The reasons we chose to add both Sands and Turner as sub-advisors to Masters’ Select Equity Fund are three-fold. First, based on our due diligence, they both meet the high standard that we require for a Masters’ Select stock picker. Second, because the highly concentrated portfolios run by each Masters’ Select sub-advisor can be very volatile, we have come to believe that more manager diversification (provided all the stock pickers are highly skilled) reduces the odds that a majority of sub-advisors will experience a slump at the same time. We believe this will smooth out the overall fund’s relative performance over shorter time periods without hurting long-term performance. So provided that our prospective and current sub-advisors meet our demanding criteria, we are likely to slightly grow our sub-advisor team over time. In this case, Sands and Turner have very different approaches to picking growth stocks, which we believe increases the potential diversification benefit. Finally, by adding to our sub-advisor team we increase the depth of the fund’s management team, so that if an existing sub-advisor is no longer a good fit for a fund, we are not necessarily forced to hire a replacement but can instead re-allocate that sub-advisor’s assets to existing Masters’ managers. In the much newer Masters’ Select Focused Opportunities Fund, given the fund’s small asset base, we felt a one-for-one replacement with Sands for TCW was more appropriate at this time.
Brief Descriptions of Sands’ and Turner’s Investment Processes
Sands, which was founded in 1992, believes that over longer periods of time, stock prices tend to follow earnings growth. They believe great investment ideas are rare, and for that reason they have a history of running a concentrated portfolio focused on companies that, based on their research, are high-quality, seasoned, and with excellent long-term growth prospects. The investment approach is purely bottom-up and focuses on finding industry-leading companies that have a sustainable competitive edge that Sands believes will enable them to fend off competitive pressures while allowing them to maintain or grow market share. Evaluating and validating their fundamental thesis involves contact with company management as well as suppliers and competitors. Ultimately, the team looks for six key factors: sustainable above-average earnings growth, leadership position in a promising business space, significant competitive advantage or unique business franchise, dedicated management, financial strength, and a rational valuation relative to business prospects. The portfolio managers for the Sands sleeve of Masters’ Select Equity will be Frank Sands Jr. and Michael Sramek with input from the entire Sands research team.
Turner, founded in 1990, believes that earnings expectations drive stock prices: companies whose earnings exceed Wall Street expectations should see their stock price perform well. Turner seeks to buy companies whose growth is accelerating. The investment process combines quantitative, fundamental, and technical analysis. Turner’s portfolio managers and analysts are sector specialists. They focus on their proprietary quantitative screen's top-ranked companies in each sector for their fundamental research. Bottom-up analysis focuses on identifying companies with accelerating revenue and earnings growth, a large potential market opportunity, expanding margins, and other growth characteristics that they believe will lead to better-than-expected earnings. Once a stock is targeted for purchase or sale, technical analysis is used to identify attractive entry (or exit) price points, although Turner may sell quickly if a company misses earnings. Valuations are not a critical element of the buy/sell decision. The portfolio managers for Turner’s sleeve of Masters’ Select Equity will be Bob Turner, Chris McHugh and Bill McVail.
About the Masters’ Select Equity and Masters’ Select Focused Opportunities Funds
For information regarding the Masters’ Select Equity and Focused Opportunities funds please click on the below links.
Masters' Select Equity Fund
Masters' Select Focused Opportunity Fund
For general information on the Masters’ Select Funds please visit the Frequently Asked Questions section of our website by clicking here.
Should you have questions or need additional information please contact us via e-mail at LG-FA@lgam.com or by phone at (925) 253-5238.
Mutual fund investing involves risk, loss of principal is possible.Though not international funds, the funds may invest in foreign securities. Investing in foreign securities exposes investors to economic, political and market risks and fluctuations in foreign currencies. Though not small-cap funds, the funds may invest in the securities of small companies. Small-company investing subjects investors to additional risks, including security price volatility and less liquidity than investing in larger companies. Masters’ Select Focused Opportunities Fund is a non-diversified fund, which means that it may concentrate more of its assets in fewer individual holdings than a diversified fund. Though primarily an equity fund, the fund may invest a portion of its assets in securities of distressed companies. Debt obligations of distressed companies typically are unrated, lower rated, in default or close to default and may become worthless.
The funds’ investment objectives, risks, charges and expenses must be considered carefully before investing. The prospectus contains this and other important information about the investment company, and it may be obtained by calling 1-800-960-0188 or visiting www.mastersfunds.com. Read it carefully before investing.
Litman/Gregory Fund Advisors, LLC has ultimate responsibility for the performance of the Masters’ Select Funds due to its responsibility to oversee the Funds’ investment managers and recommend their hiring, termination and replacement.
Masters’ Select Funds are distributed by Quasar Distributors, LLC. 04/08
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