Little surprise they're overlooked, given their location. No offense to the citizens of this red state stalwart, but we don't often hear of the New York-San Francisco-Tulsa financial triangle.
Which suits Keith Goddard just fine. "Location, location, location" may be important in real estate, but not so much in portfolio management. The manager of Tulsa, Okla.-based Capital Advisors Growth Fund outperformed the S&P 500 by 12.82% for the last bear market period from Oct. 9, 2007 (the peak) to March 9, 2009 (the low), due in large part to his, and co-manager Channing Smith's, defensive strategy.
The pre-interview marketing swag we received actually does a nice job of spelling it out.
"Some investors feel good when the market goes up 200 points and their mutual fund increases accordingly. But if you are like most investors, you realize that with every market zig comes a zag. And zags can be painful. That's why some equity funds are designed to lessen the pain of those zags. These funds protect against steep drops in the market while still allowing upside participation for a much smoother (and less painful) ride over the long term."
The 32-year-old Capital Advisors manages approximately $800 million in assets, with a core offering in separate account stock and bond portfolios. Even though the Growth fund is only 10 years old, the firm has been executing the strategy since its founding.
Among some of the accolades it's received recently: Morningstar ranks the fund in the top 20% of all equity funds for its performance during bear market months over the last five years ending May 31; Morningstar rates the fund with five stars for three years and four stars for five years; and Lipper rates the fund a five (best measure) in its category for capital preservation.
"In the broadest terms, we are trying to provide a risk-managed offering in the large-cap growth category," Goddard explains. "To the extent that somebody looks at the top 10 holdings in the fund, they will likely recognize a lot of the names as being similar to other growth funds. But I believe that the processes for risk management we overlay into the overall strategy do create something different."
So risk management comes first? Not exactly, according to Goddard.
"I don't know that I would say it comes first, but I would say that it is so integral to the stock selection process that it's just part of the fabric of the fund. The risk management filter is included in every investment decision that we make."
The filter to which he refers comes from a stock selection process overlaid with their macro view of the market. This macro-market view is formed through three primary risk filters, which he says are purely objective and quantitative. The first is valuation, where they use long-term, cyclically-adjusted 10-year-average P/E ratios for the stock market to determine where it resides (expensive, medium, cheap quartiles). The second risk filter is momentum, where they use moving averages with major indexes to determine objectively, "Are we in an up trend? Are we in a downtrend?"
The third is credit spreads, which they use to monitor risk.
"Credit spreads, moving averages, evaluation," Goddard says. "We literally quantify it for our clients with a speedometer and we quantify where we perceive the macro environment to be fitting in from a risk perspective. We use that information to tilt the design of the portfolio either more aggressively or more conservatively with the types of stocks that we populate in the portfolio."
The fund's sell trigger relies on their risk management process. If they see signs they need to tilt the portfolio more conservatively, they may lighten or eliminate a selection of more aggressive stocks in the portfolio and replace them with more conservative stocks, or vice versa. Other reasons they sell are the reasons anyone sells; the stock reaches its target or they want to make room for a different idea.
