Its concentrated, quantitative strategy led Wakefield Asset Management's top-flight large-cap equity team to a strong 2021, when the portfolio returned roughly 35% and beat the Russell 1000 Index by about 9% and winning in the Large Cap Equity category.
As Envestnet analysts noted, the firm uses a disciplined approach to take advantage of earnings surprises and mispricing, identifying companies most likely to exceed consensus earnings estimates.
The strategy has achieved an roughly 10% earnings beat rate over the S&P 500 over 20 years, according to Envestnet, which noted the portfolio rebounded last year following a difficult 2020 marked by mega-tech stock dominance.
"We're a little different than most Wall Street or investment firms. We are structured in a way where we actually are not saying we're necessarily the smartest people out there, but we think we have the most rigid discipline, best process. So rather than calling up, talking to CEOs or CFOs about how their company is doing, we look under the hood at hard underlying data," Managing Partner and CIO G. Todd Gervasini told ThinkAdvisor.
"We then rank those stocks based on that. [Next] we overlay that with a model … that predicts institutional and retail investor behavior in terms of how supportive they will be of those stocks or not. Lastly, we couple that with a very disciplined portfolio construction process, which sounds boring, but controlling your position sizes and sector controls leads to a lot of great results for us from time to time," Gervasini explained.
The discipline has worked well for the 25-year-old portfolio, which has outperformed the S&P 500, he said. It helps put Wakefield in a position where they "avoid the irrational exuberance on the upside and avoid the irrational pessimism on the downside," he added. "So it really helps us in both the bull and the bear markets. And so far last year, and this year, it's been great."
