Last updated: 19:55 / Wednesday, 30 October 2013
Nordea’s US AllCap Strategy

VARG Better than GARP as an Investment Philosophy which Focuses More on Value Than on Growth

VARG Better than GARP as an Investment Philosophy which Focuses More on Value Than on Growth

As part of Nordea’s strategy of signing exclusive agreements with boutique asset management companies specializing in asset classes that are outside its normal range, the Nordic management company agreed to launch a UCITS US AllCap Equity strategy in 2012, sub-advised by US' Eagle Asset Management.

At the event held in Miami by Citywire, Funds Society had the opportunity to talk with Ed Cowart, CFA, portfolio co-manager of this US AllCap Equity strategy, as well as of the strategies Large Cap Value and Equity Income which are also managed by the company, although these last two are only available to the U.S. domestic investor.

"Our investment strategy follows the VARG (Value and Reasonable Growth) philosophy which comes before the traditional GARP (Growth at a Reasonable Price) model, because valuation is paramount," says Cowart. The main idea behind the VARG investment philosophy is that it protects against paying too much for a company, while the reasonable growth vector provides protection from falling into value traps and unlocks the shares’ future valuation.

Thus, the strategy, which maintains between 30 and 50 stocks in its portfolio, brings together the best ideas of each of the four co-portfolio managers who make up this team and who have worked together for many years. "Whenever we see an idea in which we have a greater conviction, we will make room for it, ensuring at all times that we have our favorite stocks in the portfolio."

This team of four co-managers has over 100 years of combined investment experience in a variety of market environments, with an excellent track record in terms of the capture ratio in both bull and bear markets.

Cowart, who is also Managing Director of Eagle Asset Management, explains that the team usually talks for months or even years before making the final decision to invest in a company where it is always fundamental to combine the two essential themes of the strategy : fundamentals + valuation. "Great companies can be terrible investments if the price is not adequate" he says.

When holdings ​​are added to the portfolio, it is with the view of maintaining them for 2-3 years, so that on average, portfolio managers are adding a new name each month, usually to replace another one in the portfolio. "The catalyst which helps us decide to enter into a company which we like and which is cheap, varies. For example now, with the shale gas revolution in the U.S., the triggers required for manufacturing companies, not necessarily related to exploration, to be added to our portfolio are all in place. "

Eagle Asset Management’s US AllCap Equity strategy was launched in its U.S. domestic version in the last quarter of 1999, but it was not until June 2012, with its launch on Nordea's SICAV, that it achieved greater successes, growing from an initial seed capital of $2 million at its launch to the $1.2 billion under management today.

"Together, in these three strategies we manage about $4 billion, and we find no problem seeing the AllCap strategy grow beyond $10 billion because our portfolio is more mid-cap than small-cap," says Cowart.