USA - USA: Value Tilt Could Cause Outperformance

2023-07-17 07:18:01 ET

Summary

• The Liberty All-Star Equity Fund is a multi-managed, closed-end investment fund that employs a dual strategy of growth and value.
• The fund is essentially split across five investment management companies, with a 60% bias towards value-oriented investment styles and the remaining 40% leaning towards growth.
• If Value is indeed due to outperform Growth, USA could make for an interesting broad market proxy with high yield.

The Liberty All-Star Equity Fund ( USA ) is a multi-managed, closed-end investment fund that employs a dual strategy of growth and value. The fund is essentially split across five investment management companies, with a 60% bias towards value-oriented investment styles and the remaining 40% leaning towards growth.

The fund's strategy is anchored on allocating its assets equally among several independent investment management organizations, each boasting a unique investment style. The fund is monitored by ALPS Advisors, Inc., the fund's investment advisor.

The Fund's Structure

The fund's structure is divided into two segments: Value Managers and Growth Managers.

Value Managers

The Value Managers division includes the following:

• Aristotle Capital Management, LLC : This firm aims to invest in high-quality, attractively valued companies that possess catalysts for positive change.
• Fiduciary Management, Inc. : This firm's strategy is to invest in durable business franchises that are selling at low valuations and a significant discount to their intrinsic value.
• Pzena Investment Management, LLC : This firm seeks to invest in companies with low price?to?normalized earnings ratios that have the ability to generate earnings recovery.

Growth Managers

The Growth Managers division comprises the following:

• Sustainable Growth Advisers, LP : This firm aims to invest in companies with predictable, sustainable earnings and cash flow growth over the long term.
• TCW Investment Management Company : This firm seeks to invest in companies that have superior sales growth, leading and/or rising market shares, and high and/or rising profit margins.

Distribution Policy

Liberty All-Star Equity Fund has a distribution policy that is based on paying out approximately 10% of its net asset value every year in four quarterly installments of 2.5% to common shareholders. The distribution is primarily driven by investment income and net realized capital gains. However, a return of capital can be utilized in any year when the company's stated 10% NAV distribution target cannot be met by capital gains and investment income.

Performance of the Fund

Relative to the S&P 500 ( SPY ), USA has underperformed over the past two years, which makes sense given that for the most part it's been a growth-oriented period of outperformance (with much of that happening over the last 6 months as Technology led the way). I've noted before that I think Value could make a big relative comeback now, which means the factor style tilt could cause USA to turn relative to SPY.

Diversified Portfolio

The Liberty All-Star Equity Fund provides a diversified portfolio, with a broad exposure across several industries. The fund has a higher concentration in cyclical sectors, which makes it more like a risk-on play despite the distribution it pays out.

Conclusion

All in all, the Liberty All-Star Equity Fund offers a unique and diversified investment opportunity. With a team of expert investment managers at the helm, the fund aims at providing steady returns and a reliable dividend stream. Whether you're an experienced investor or just starting your investment journey, the Liberty All-Star Equity Fund can be a valuable addition to your portfolio. If Value is indeed due to outperform Growth, USA could make for an interesting broad market proxy with high yield.

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