Our ongoing Q&A series features Carillon Tower affiliate managers sharing their diverse investment philosophies and thoughts on the market.
Eagle Asset Management’s investment team employs a rigorous bottom-up stock selection technique that seeks to capitalize on profitable mid-size companies.
The team seeks securities of companies that offer rapid growth at reasonable valuations based on qualitative analysis. The strategy focuses on managing risk, sticking with winners and being proactive in anticipating problems.
The overarching mantra of the Eagle Mid Cap Growth strategy is to invest in companies that are going to experience an acceleration in their earnings growth rate. Simply put: we are looking for companies where the future is better than the past. The key component of the strategy is to be early in identifying these opportunities and recognize this inflection in earnings growth before our competitors, which allows us to buy stocks at reasonable valuations.
We leverage our years of experience researching specific sectors to find companies poised to see a step-change in growth. Typically, this inflection point in the growth rate coincides with a change in industry dynamics — a new product introduction or a strategic acquisition. We frequently scour the upper end of the small-cap investment universe to identify up-and-coming mid-cap stocks as candidates for the portfolio. As the acceleration in growth becomes apparent to the rest of the investment community, the stock typically experiences significant multiple expansion which drives substantial share price appreciation. Importantly, we do not use price targets; we tend to let our winners run and drive the alpha in the portfolio.
Unsurprisingly, the health care and technology sectors stand out as important areas of focus for growth investors. We allocate significant resources to research these sectors where we typically find many candidates for accelerating earnings growth. The earnings growth rates of companies in these sectors are less influenced by the economic cycle, which makes them attractive long-term holdings. Importantly, we employ a relatively neutral sector-allocation strategy. This means we typically will not significantly under- or overweight a specific sector versus the benchmark. Sector calls are extremely difficult to get right on a consistent basis and can lead to variability in performance. All of our excess returns are derived from security selection (i.e., stock picking) which we believe lends itself to consistent outperformance.
The ongoing trade war with China, coupled with a Brexit-induced slowdown in Europe, has resulted in a sharp slowdown in domestic manufacturing. However, the consumer has remained strong, unemployment is at a 50-year low, and wages are rising. Low interest rates have helped breathe new life into the housing sector that slowed in 2018. The housing recovery also appears to be further spurred by the long-awaited emergence of the Millennial homebuyer. Autos have defied most prognosticators by holding up well despite what appears to be an extended cycle. Looking forward to next year, the upcoming U.S. elections have the potential to sharply influence equity markets. The current administration has a vested interest in keeping markets strong and we believe rhetoric coming out of the White House should be positive for markets. On the other hand, depending on who is nominated, rhetoric from the Democratic side is likely to have a depressant effect, with healthcare as well as financials and technology potentially in the crosshairs.
Eagle Asset Management provides a broad array of fundamental equity and fixed-income strategies designed to meet the long-term goals of institutional and individual investors. Eagle’s multiple independent investment teams have the autonomy to pursue investment decisions guided by their individual philosophies and strategies.
To learn more about Eagle Asset Management click here or contact us at 800.521.1195.
All investments are subject to risk. Asset allocation and diversification do not ensure a profit or protect against a loss. There is no assurance that any investment strategy will be successful or that any securities transaction, holdings, sectors or allocations discussed will be profitable.
This material may include forward-looking statements. These statements are not historical facts, but instead represent only beliefs regarding future events, many of which, by their nature, are inherently uncertain. You should not place undue reliance on forward-looking statements as it is possible that actual results and financial conditions may differ, possibly materially, from the anticipated results and financial conditions indicated in these forward-looking statements. There are uncertainties, unknown risks, and other factors that may cause actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these statements.
The statements above are based on the views of the advisor and are subject to change.
The information presented is for discussion purposes only and not an offer.
The information presented is not tax, investment or legal advice. Prospective investors should consult with their advisers.
Investing in mid-sized companies is based on the premise that relatively smaller companies will increase their earnings and grow into larger, more valuable companies. Historically, mid-cap stocks have experienced greater volatility than other equity asset classes, and they may be less liquid than larger cap stocks. Thus, relative to larger, more liquid stocks, investing in mid-cap stocks involves potentially greater volatility and risk. In addition, midcap stocks have experienced greater volatility than other classes of securities. Mid-cap stocks can also be less liquid than those of large companies, and illiquidity increases the potential for volatility. As with all equity investing, there is the risk that a company will not achieve its expected earnings results, or that an unexpected change in the market or within the company will occur, both of which may adversely affect investment results. The biggest risk of equity investing is that returns can fluctuate and investors can lose money. Not every investment opportunity will meet all of the stringent investment criteria mentioned to the same degree. Trade-offs must be made, which is where experience and judgment play a key role. Accounts are invested at the discretion of the portfolio manager and may take up to 60 days to become fully invested.
Past performance does not guarantee or indicate future results. The information presented is for a representative account and for illustrative purposes only and should not be used as the sole basis for an investment decision. Actual account holdings will vary depending on the size of an account, cash flows within an account, and restrictions on an account.