January 2011
flash Product Natixis Actions US Growth Natixis Asset Management has decided to delegate the financial management of the Natixis Actions US Growth fund to the American investment company Loomis, Sayles & Co. L.P., and more particularly to the "Large Cap Growth" management team directed by Aziz Hamzaogullari. This sub-adviser change took place on 20 December 2010. Natixis Asset Management has indeed decided to place its trust in an experienced management team, specialising in the "Growth" style of management on large American capitalisations. The latter has set up a differentiated management approach based on research in order to outperform the market over the long term.
A differentiated "Growth" management approach incorporating requirements in terms of quality and value assessment The "Growth" approach consists in identifying companies with a high potential for growth of for which the profits should increase more than the market average. The new management team of Natixis Actions US Growth is therefore looking for companies that have sustainable growth engines. For this, it seeks to evaluate the quality of the sources of growth and their ability to last over the long term. However, contrary to most of the other funds that have a "Growth" management approach, the new investment process of Natixis Actions US Growth now incorporates other criteria into its process of selecting the companies that comprise the portfolio. Quality The management team will first of all try to identify quality companies by analysing various criteria: • Looking for a sustainable competitive advantage (identifying differentiating items and assessing the sustainability of the business model) • Analysis of the competition (barriers to entry, stiffness of the competition, power over the suppliers, etc.) • Financial analysis (cash flow, return on invested capital, solidity of the balance sheet, etc.) • Assessment of the management (managers' views over the long term, effective allocation of resources, analysis according to criteria that are close to those applied within the framework of private equity)
Valuation The management team is also looking to acquire shares in companies for which the market value is less than their intrinsic value. For this, it will conduct a stringent assessment of the companies and the outlook concerning how their results could change: • Definition of intrinsic value (Calculating the discounted future cash flow) • Analysis of the forecasts (evaluating components in the price of the share: differentiating between fundamentals and investor feelings) Assessing companies is carried out through the analysis of multiple indicators that are proper to each company and to their sector of activity, not via assessment methods that are applied uniformly across all of the stakeholders in the market. Long-term view These various criteria are analysed through the long-term investment prism, as the rotation rate for the portfolio is only about 20%. Fund management as such will not be influenced by the events that affect the value assessment of companies in the short term but will focus rather on the basics of the business model of each company and of their impact over time. As companies that satisfy the various criteria set up by the management are relatively rare, the portfolio focuses on 30 to 40 securities that correspond to the managers' highest convictions. The management approach is purely "bottom up" and the macro factors have only a small influence on investment decisions.
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Flash product / January 2011
Recognised expertise of a management team based in the United States Natixis Asset Management has called upon the expertise of a recognised stakeholder in asset management in the United States for the financial management of Natixis Actions US Growth: Loomis, Sayles & Co. L.P. Established in Boston since 1926, Loomis Sayles is a subsidiary of Natixis Global Asset Management which benefits from more than 80 years of experience in asset management for private and institutional clients and investment funds.
The company benefits indeed from many teams of analysts who are specialised by asset class and by activity sector. The company was managing 150 billion dollars in assets at 30 September 2010*. An investment team dedicated to the "Large Cap Growth" strategy comprised of a portfolio manager and 3 experienced analysts is in charge of managing the Natixis Actions US Growth fund. The exposure managed within the framework of this strategy stands at 824 million dollars at 30 September 2010.*
Throughout the years, Loomis Sayles has been able to make use of its reputation for know-how via a basis that is common to all of its expertise: research.
Aziz Hamzaogullari, CFA, Vice president of Loomis, Sayles & Company and lead portfolio manager of the Loomis Sayles large cap growth strategies, including Natixis Actions US Growth Aziz has 17 years of investment management experience and joined Loomis Sayles in 2010 from Evergreen Investments, where he was the senior portfolio manager of the Evergreen Omega and Large Company Growth Funds. Aziz joined Evergreen in 2001, was promoted to director of research in 2003 and portfolio manager in 2006. He was head of Evergreen's Berkeley Street Growth Equity team and was the founder of the research and investment process. Prior to joining Evergreen, Aziz was a senior equity analyst and portfolio manager for Manning & Napier Advisors. He received a BS from Bilkent University, Turkey, and an MBA from George Washington University.
* Source: Loomis, Sayles & Company, L.P.
Portfolio manager performance : a very good track record since 2006 1 year
3 years
Since 1/07/2006
14.04% 11.63%
11.06%
7.32%
6.73% 3.22%
2.85 % 2.29% -2.35%
Composite (gross of fees)
Composite (net of fees)
Russell 1000 Growth Index
Source : Loomis, Sayles & Company, L.P.
Annualised performance of the "Large Cap Growth" composite in USD at 30/11/2010
The manager of the "Large Cap Growth" composite joined Loomis Sayles on 19 May 2010; performance prior to this date was therefore conducted within his former management company. The figures mentioned pertain to years that have elapsed. Past performance is not a reliable indicator of future performance.
Favourable outlook over the long term Natixis Actions US Growth's fundamental "bottom up" management approach is not guided by macro factors and the sector positions are therefore the result of basic research conducted within the management process. This approach is currently leading the management team to overweight the healthcare, financials and technology sectors within the portfolio, contrary to the industrials, materials and energy sectors which are underweighted.
The long-term outlook for high quality growth companies are favourable given low embedded expectations, attractive valuations and an environment where consistent profitable growth is rare. For example, the investment team has identified several opportunities in high quality healthcare companies where expectations are low, making them very attractive longterm investments.
www.am.natixis.com
Flash product / January 2011
Two stock examples: Visa and Amazon Visa
Amazon
Unique: • Brand that took decades to build; • Network of 10,000 financial institutions with 7-10 year contracts extremely difficult to recreate; • Brand acceptance with 26 million merchants in 128 countries.
Unique: • Brand, Amazon is the first name in e-commerce; • Cost, much lower cost structure with centralized inventory (real stores need to replicate merchandise at each store) with no constraints imposed by physical limitations of stores (product offering is virtually limitless); • Scalability, as the benefit of these advantages become more pronounced as they get bigger.
Market share: 65% (closest is MasterCard with 25% and American Express with 8%) Cash flow generation: Capable of self-financing future growth, strong balance sheet Management: Thinks long-term and acts long-term How it meets the quality criteria: sustainable growth considering shift from paper forms of payment to electronic payment, 4 decades ago penetration was 20% in the U.S., today it is 60%; noting that two-thirds of growth is from outside the U.S. where penetration is only 10% (ex-Europe which is not part of the stock), i.e., growth potential continues to be very strong. Valuation at purchase: Priced at worst case scenario where global spending would be 80-90% of prevailing level with 2-3% GDP growth in perpetuity. Comfortable (as noted above in macro discussion) because spending is generally doesn’t change dramatically and is usually within a tight band further pricing in conservative global growth not considering the low penetration of electronic payment use in economies with swiftly expanding consumer markets (emerging markets).
Market share: Significant power over suppliers. Cash flow generation: Pay it forward cash flow, they receive payment from shopper in 2-3 days, pay suppliers after 45 days. Management: Head of the company is its owner, Jeff Besos owns 20% of the company. How it meets the quality criteria: Sustainable growth considering the shift to on-line shopping is strong and the penetration rate in the U.S. is only 4%. Valuation at purchase: Bought at worst case scenario in 2Q06 when company reported low margins. Market immediately repriced (stock dropped 20% in one day) to a level presuming no expansion of margins ever. So, worst case scenario was that margins never changed and the stock went no where, if margins improved strong upside potential.
Top 10 holdings
Google Inc-Cl A
6.7%
in the composite as at 30/11/2010
Amazon.com Inc
6.5%
Visa Inc-CLass A shrs
6.1%
Biogen Idec Inc
5.1%
Oracle Corp
5.0%
Qualcomm Inc
4.2%
Cisco Sysytems Inc
4.2%
United Parcel Service Cl B
4.2%
Sei Investments Co
4.1%
American Express Co Total
4.0% 50.4% Source: Loomis, Sayles & Company, L.P.
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Flash PRODUcT / January 2011
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