Putting Research to Work
Nationwide U.S. Small Cap Value Fund
Author: Ticker Magazine
Last Update: Apr 20, 12:01 AM ET
|What qualifies as cheap in the stock market will always depend on an investor’s yardstick. Even though the stock price is a combination of all possible factors, it still remains a volatile indicator, prompting investors to use a relatively stable metric when comparing thousands of companies. Jed Fogdall, portfolio manager of the Nationwide U.S. Small Cap Value Fund, relies on the dimensions of expected returns in building a portfolio of stocks with the potential of exceeding market expectations.
“The fundamental belief is that markets do the best job of incorporating everybody’s information into the price. And that price combined with other metrics for firms give you indications of the differences in expected returns.”
When you apply a price-to-book metric across an entire market, you are going to get some sector deviation from market cap weighting. Some deviation is expected but we do apply the constraints I mentioned before.
Q: Do you have an upper limit for a specific holding?
The biggest holding is about 50-60 basis points. From a regulatory perspective it could go higher, but a stock over 2% of the fund would be unusual.
Q: What does risk mean to you, and how do you go about managing it?
You will not find this fund changing its exposure to stocks vs. cash over time. We make it clear that a fund like this one will have full market exposure all the time.
The same is true for the size, value, and profitability exposure in the fund. Our clients expect that their fund will not drift from the desired characteristics so frequent monitoring and rebalancing manage that risk. I want to be able to say we do exactly what we told you we would do.
In terms of things like operational risk, I’m thinking about whether we have the tools, processes, and people in place to manage the fund effectively. We have spent time and money building a process that allows portfolio managers and traders to communicate through a single channel. This lowers the cost of communication and makes the process more efficient.
More importantly, our compliance function is able to wrap the appropriate rules and analytics around a single source of information which yields a high degree of transparency.
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