She Works Hard for the Money
Walker is responsible for the execution of the firmâ€™s large cap growth and mid cap growth equity strategies along with a team of equity research analysts. As of December 31, 2013, the American Beacon Holland Large Cap Growth Fund (LHGFX) had returned 32.21% with $96 million in net assets and 47 different company holdings.
Prior to topping nearly $5 billion in assets under management in 2013, Holland Capital had reached its highest level at $3 billion in 2005. But by 2008â€”the year of the financial meltdownâ€”assets under management plummeted to $1.3 billion. The previous year several public pension funds like the Teachersâ€™ Retirement System of Illinois, Hollandâ€™s biggest loss at $315 million, axed the firm. That action contributed to a 28% decline in assets.
Other client defections included the Illinois State Board of Investment and the Chicago Policemenâ€™s Annuity and Benefit Fund. Investors expressed concerns about the firmâ€™s succession under a woman, organizational issues, and poor performance, according to Crainâ€™s Chicago Business. Hollandâ€™s large cap growth mutual fund one-year return was 5.23% for 2006, compared to 15.46% for its benchmarkâ€”the Russell 1000 Index.
Itâ€™s a simple equation; money management firms generate revenues from the assets they manage, typically 1% in fees. Not surprisingly, Holland Capital was affected by the 2008 market downturn. â€śYou donâ€™t have to lose an account. If your assets under management goes down, your revenues go down,â€ť says Walker. â€śBut during that period our large cap strategyÂ had better relative performance than the Russell 1000 Growth Index. â€śIn 2010, 2011, and 2012 we were able to gain additional client assets,â€ť she adds.
Holland Capital held up extraordinarily well during the financial crisis and the Great Recession, says Jeff Ringdahl, COO, American Beacon Advisors, which holds the No. 1 spot on the BE Asset Managers list with $49.4 billion in assets under management. â€śIf you lose 20% of your portfolioâ€™s value, then it takes a 25% return in order to make up for that loss. Holland Capitalâ€™s downside protection is one of its most attractive and differentiating characteristics.â€ť
Walker says Holland Capital managed operations during the downturn by â€ślooking across discretionary expenses for areas where we could reduce expenses without cutting the services our clients expected us to provide and they deserve. We eliminated one position. We didnâ€™t give out bonuses. We had cash reserves.â€ť Holland Capital took advantage of the 2008 bear market and picked up some consistent growth equities at bargain-basement prices including several in consumer related sectors.
The American Beacon Large Cap Growth fund returned 39.07% for 2009. As of 2010, the fundâ€™s 10-year returns put it in the top 25% of the large-growth category. In 2012, American Beacon adopted the fund. Ringdahl notes, â€śThere are three capabilities that a mutual fund sponsor needs to execute successfully: to be able to manage the portfolio, operate the mutual fund, and distribute the fund and grow it. We hire asset managers like Holland Capital to manage a fundâ€™s assets while we operate and distribute the funds. Itâ€™s a symbiotic partnership.â€ť American Beacon has 38 different sub advisory relationships with asset management firms.
Holland Capitalâ€™s investment style seeks to provide participation in rising markets and protection in declining markets. â€śWe arenâ€™t momentum players, we are long term. We look to own stocks three to five years or longer. Our portfolio turnover is low, about 27%,â€ť says Walker.
Walkerâ€™s team looks for companies that have strong management and good financial positionsâ€”solid balance sheets, strong return on equity, and good cash flowâ€”and are strong brands or industry leaders. â€śWe are bottom-up stock pickers, driven by fundamental research and analysis of individual companies,â€ť Walker notes. By contrast, top-down pickers analyze the economy and industry forecasts.
Holland Capital has a clear and compelling philosophy for how it manages money. â€śOne thing that has always been a characteristic of our strategy is that we are high quality growth managers,â€ť says Walker, who looks for large companies that are growing faster than the general market with earnings increasing at a double-digit rate that can be bought at a reasonable valuation. Walker also likes management teams that disclose information, have a good track record, and buy their own stock. Trust and faith in management is crucial, she says.