She Works Hard for the Money
Walker is responsible for the execution of the firm’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 2008–the year of the financial meltdown–assets under management plummeted to $1.3 billion. The previous year several public pension funds like the Teachers’ Retirement System of Illinois, Holland’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 Policemen’s Annuity and Benefit Fund. Investors expressed concerns about the firm’s succession under a woman, organizational issues, and poor performance, according to Crain’s Chicago Business. Holland’s large cap growth mutual fund one-year return was 5.23% for 2006, compared to 15.46% for its benchmark–the Russell 1000 Index.
It’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. “You don’t have to lose an account. If your assets under management goes down, your revenues go down,â€ says Walker. “But during that period our large cap strategyÂ had better relative performance than the Russell 1000 Growth Index. “In 2010, 2011, and 2012 we were able to gain additional client assets,â€ 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. “If you lose 20% of your portfolio’s value, then it takes a 25% return in order to make up for that loss. Holland Capital’s downside protection is one of its most attractive and differentiating characteristics.â€
Walker says Holland Capital managed operations during the downturn by “looking 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 didn’t give out bonuses. We had cash reserves.â€ 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 fund’s 10-year returns put it in the top 25% of the large-growth category. In 2012, American Beacon adopted the fund. Ringdahl notes, “There 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 fund’s assets while we operate and distribute the funds. It’s a symbiotic partnership.â€ American Beacon has 38 different sub advisory relationships with asset management firms.
Holland Capital’s investment style seeks to provide participation in rising markets and protection in declining markets. “We aren’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€ says Walker.
Walker’s team looks for companies that have strong management and good financial positions–solid balance sheets, strong return on equity, and good cash flow–and are strong brands or industry leaders. “We are bottom-up stock pickers, driven by fundamental research and analysis of individual companies,â€ 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. “One thing that has always been a characteristic of our strategy is that we are high quality growth managers,â€ 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.