Smead Value Fund - Smead Capital Management · 2017-07-27 · Source: BofA Merrill Lynch...

Opinions are subject to change, are not guaranteed, and should not be considered recommendations to buy or sell any security.

© 2017 Smead Capital Management (SCM), All Rights Reserved.www.smeadcap.com

2nd Quarter 2017 Webcast

Smead Value Fund

This material is provided for informational purposes only and should not be construed as investment advice. Forecasts and opinions reflect the personal

judgments of the presenter and may not reflect those of Smead Capital Management. Statements and opinions are subject to change.

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Today’s Agenda

Performance, Characteristics and Top 10 HoldingsCole Smead, CFA, Portfolio Manager

Featured Stock: Walgreens Boots AllianceTony A. Scherrer, CFA, Portfolio Manager

What Doesn't Kill You Makes You Stronger!Bill Smead, Lead Portfolio Manager

*Institutional Shares were renamed I1 shares on 11/21/2014 with a new ticker SVFFX

Investor Shares Gross Expense Ratio 1.26%A Shares Gross Expense Ratio 1.22%I1 Shares Gross Expense Ratio 1.00%

Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by calling 877-807-4122. Performance for SVFAX (w/load) reflects maximum sales charge of 5.75%. Performance for SVFAX does not reflect maximum sales charge of 5.75%. If reflected, the load would reduce the performance amount quoted. SVFAX applies a maximum Deferred Sales Charge on Class A shares only to purchases of $1,000,000 or more that are redeemed within 18 months of purchase. Performance data does not reflect the redemption fee. If it had, returns would be reduced.

Investor Class shares of the Fund commenced operations on January 2, 2008. I1 Class shares of the Fund commenced operations on December 18, 2009. Performance shown for I1 Class shares prior to its inception reflects the performance of Investor Class shares. Class A shares of the Fund commenced operations on January 24, 2014. Performance shown for Class A shares prior to its inception reflects the performance of Investor Class shares, adjusted to reflect Class A expenses.

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Quarter-End PerformanceAverage Annualized Total Returns (%) as of June 30, 2017

Qtr YTD 1 Year 3 Year 5 YearSince

Inception

Smead Value Fund Investor Class (SMVLX) 2.97% 10.33% 18.72% 7.77% 15.51% 7.91%

Smead Value Fund A Share w/ load (SVFAX) -2.93% 3.99% 11.96% 5.66% 14.05% 7.07%

Smead Value Fund A Share w/o load (SVFAX) 2.98% 10.34% 18.79% 7.77% 15.41% 7.74%

Smead Value Fund I1 Share Class (SVFFX)* 3.04% 10.47% 19.04% 8.06% 15.81% 8.13%

Russell 1000 Value Index 1.34% 4.66% 15.53% 7.36% 13.94% 6.56%

S&P 500 Index 3.09% 9.34% 17.90% 9.61% 14.63% 7.73%

Past performance does not guarantee future results.4

Smead Value FundKey Facts and Characteristics as of June 30, 2017

Fund holdings and sector allocations are subject to change at any time and are not recommendations to buy or sell any security. 5

Smead Value FundTop Ten Holdings as of June 30, 2017

4.67%

4.84%

5.01%

5.09%

5.23%

5.29%

5.46%

5.49%

5.86%

5.87%

0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00%

Lennar Corp.

Aflac Inc.

PayPal Holdings Inc.

eBay Inc.

Bank of America Corporation

American Express Co.

JPMorgan Chase & Co.

Berkshire Hathaway Inc. B

NVR Inc.

Amgen Inc.

Percentage of Fund

Current and future holdings are subject to change at any time and are not recommendations to buy or sell any security. 6

Portfolio Additions / DeletionsSecond Quarter 2017

> Buys:– Target Corporation (TGT)

> Sells: – Express Scripts (ESRX)

> Adds to position weightings:– AmerisourceBergen Corp. (ABC)– Nordstrom (JWN)– Lennar (LEN)– Scripps Networks Interactive, Inc. (SNI)– Walgreens Boots Alliance (WBA)

> Trims to position weightings:– NVR Inc. (NVR)

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Today’s Agenda




CFA is a registered trademark owned by the CFA Institute.

Past performance is no guarantee of future results. Current and future holdings are subject to change at any time and are not recommendations to buy or sell any security. 8

1. Meets an economic need

2. Strong competitive advantage (wide moats or barriers to entry)

3. Long history of profitability and strong operating metrics

4. Generates high levels of free cash flow (FCF)

5. Available at a low price in relation to intrinsic value

Featured Stock: Walgreens Boots Alliance

Our Eight Criteria

Favored, but not required

Required over entire holding period

May also relate to timing/portfolio weighting

For companies that don’t meet one of these, we believe our required criteria will ultimately correct or overwhelm.

6. Management’s history of shareholder friendliness

7. Strong balance sheet

8. Strong insider ownership(preferably with recent purchases)

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Featured Stock: Walgreens Boots AllianceWalgreens Boots Alliance: Meets an Economic Need

Past performance is no guarantee of future results. Source: Walgreens Boots Alliance press release “Walgreens and Alliance Boots to Combine” on August 6, 2014.

Past performance is no guarantee of future results. Source: Transcript, Q3 Earnings Conference Call, 201710

Featured Stock: Walgreens Boots AllianceWalgreens Boots Alliance: Strong Competitive Advantage

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Featured Stock: Walgreens Boots AllianceWalgreens Boots Alliance: Long History of Profitability & Operating Metrics

Past performance is no guarantee of future results. Source: Jefferies report, October 17, 2016

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Featured Stock: Walgreens Boots AllianceWalgreens Boots Alliance: High Levels of Free Cash Flow

Past performance is no guarantee of future results. Source: Bloomberg as of 6/30/2017. EBIDTA: Earnings before interest, tax, depreciation and amortization, OCF: Operating Cash Flow, CapEx: Capital Expenditure, FCF: Free Cash Flow, FCF per Share: Free Cash Flow per Share, EPS: Earnings Per Share, FCF Sales: Free Cash Flow to Sales, FCF Yield: Free Cash Flow Yield. See definitions at the end of this presentation.

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Featured Stock: Walgreens Boots AllianceWalgreens Boots Alliance: Low Price in Relation to Intrinsic Value

Past performance is no guarantee of future results. Source: ThomsonReuters Baseline

Forw

ard

Pric

e-to

-Ear

ning

s (P

/E)

Forw

ard

Pric

e-to

-Sal

es (P

/S)

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Featured Stock: Walgreens Boots AllianceWalgreens Boots Alliance: History of Shareholder Friendliness

Past performance is no guarantee of future results. Source: Bloomberg as of 12/31/2016.

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Featured Stock: Walgreens Boots AllianceWalgreens Boots Alliance: Strong Balance Sheet

Past performance is no guarantee of future results. Source: Bloomberg as of 2/28/2017.

Past performance is no guarantee of future results. Source: The Washington Service as of 6/30/2017.16

Featured Stock: Walgreens Boots AllianceWalgreens Boots Alliance: Insider Ownership

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Today’s Agenda




Opinions are subject to change, are not guaranteed, and should not be considered recommendations to buy or sell any security.

© 2017 Smead Capital Management (SCM), All Rights Reserved.www.smeadcap.com

Presented by:Lead Portfolio Manager Bill Smead

What Doesn't Kill You Makes You Stronger!

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Today’s Agenda

What is Killing Investor Enthusiasm?

How Does This Make Us Stronger?

Today's Circumstances

Where Are The Bargains?

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What Doesn't Kill You Makes You Stronger!What is Killing Investor Enthusiasm?

Indexing

Past performance is no guarantee of future results. Source: http://www.marketwatch.com/story/how-can-active-fund-management-be-dead-if-indexing-represents-only-5-of-all-assets-2017-01-13. Data for the time period 1/1/2007-11/30/2016.

http://www.marketwatch.com/story/how-can-active-fund-management-be-dead-if-indexing-represents-only-5-of-all-assets-2017-01-13

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FANG

Past performance is no guarantee of future results. Source: Stifel, June 1, 2017. Data for the time period 12/31/2014 – 5/30/2017. FANG stocks include Facebook (FB), Amazon (AMZN), Netflix (NFLX) and Alphabet (GOOGL).

S&P

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Polarized Politics

Past performance is no guarantee of future results.

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Anemic Economic Growth

Past performance is no guarantee of future results. Source: JP Morgan Guide to the Markets Q1 2017. Data for the time period 7/1/2009 – 3/31/2017. GDP: Gross Domestic Product.

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Expensive Stocks & No Stock Splits

Past performance is no guarantee of future results. Data for the time period 1/1/1980 – 12/31/2012.

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Today’s Agenda





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What Doesn't Kill You Makes You Stronger!How Does This Make Us Stronger?

Bargains

Past performance is no guarantee of future results. Source: https://seekingalpha.com/article/4054803-s-and-p-500-sector-weights-lot-changed-8-years?page=2. Data for the time period 3/9/2009 – 3/9/2017.

https://seekingalpha.com/article/4054803-s-and-p-500-sector-weights-lot-changed-8-years?page=2

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Mania Avoidance

Past performance is no guarantee of future results. Source: Strategas Research Partners. Data for the time period 1/1/2012 - 1/23/2017.

S&P

500

Cons

umer

St

aple

s Se

ctor

(pric

e)S&

P 50

0 Co

nsum

er

Stap

les

Sect

or (b

read

th)

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Historical Long-Term Patience

Past performance is no guarantee of future results. Source: http://www.thinkadvisor.com/2015/08/31/why-and-when-active-managers-shine-and-how-to-spot. Data for the time period 1/1/1995 – 12/31/2013.

http://www.thinkadvisor.com/2015/08/31/why-and-when-active-managers-shine-and-how-to-spot

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Demographic Opportunities

Past performance is no guarantee of future results. Source: BofA Merrill Lynch “Tracking the U.S. Consumer,” September 16, 2016/ Data for the time period 1/1/1990 – 12/31/2015. Data is projected through 12/31/2030.

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Today’s Agenda





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What Doesn't Kill You Makes You Stronger!Today's Circumstances

Historically Low Rates

Past performance is no guarantee of future results. Source: ThomsonReuters Baseline. Data for the time period 1/1/1969 – 6/28/2017.

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Historically Low Rates

Past performance is no guarantee of future results. Source: Strategas Research Partners. Data for the time period 1/1/2011 – 6/23/2017. MA: Moving Average.

U.S

. 10-

Year

Yie

ldU

.S. 1

0-Ye

ar Y

ield

33


Past performance is no guarantee of future results. Source: Smead Capital Management and Bloomberg. P/E: Price-to-Earnings Ratio.

Bifurcated StocksS&

P 50

0 Tr

ailin

g P/

E

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Benefits of Low Turnover

Past performance is no guarantee of future results. Source: Source: Financial Analyst Journal Jan/Feb 2013 “Shedding Light on “Invisible” Costs: Trading Costs and Mutual Fund Performance”, by Roger Edelen, Richard Evans, and Gregory Kadlec. A bid-ask spread is the amount by which the ask price exceeds the bid price for an asset in the market. Data for the time period 1/1/1995 – 12/31/2006.

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Meeting the Economic Need in Housing

Past performance is no guarantee of future results. Source: ISI Group as of 7/31/2016. Y axis represents percentage of U.S. Population. Blue line represents houses for sale per U.S. Population. Shaded areas represent recession periods. Black line represents 3-Mo. Average. Data as of 7/31/2016.

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Today’s Agenda





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What Doesn't Kill You Makes You Stronger!Where Are The Bargains?

Media

Past performance is no guarantee of future results. Source: http://www.businessinsider.com/cable-tv-subscriber-losses-q2-chart-2017-6. Data for the time period 1/1/2012 – 12/31/2016. Data for 2017 and 2018 is estimated.

http://www.businessinsider.com/cable-tv-subscriber-losses-q2-chart-2017-6

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Healthcare

Past performance is no guarantee of future results. Source: Bloomberg. Data for the time period 1/1/2011 – 6/30/2017.

BEst

P/E

Rat

io

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Homebuilding

Past performance is no guarantee of future results. Source: Bloomberg. Data for the time period 1/1/2011 – 3/31/2017.

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Retail

Past performance is no guarantee of future results. Source: https://www.slideshare.net/jbatistich/understanding-amazoncom-the-worlds-most-disruptive-company. Data for the share position chart is as of 12/31/2016. Data for the store closures site is as of 3/31/2017.

https://www.slideshare.net/jbatistich/understanding-amazoncom-the-worlds-most-disruptive-company

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Today’s Agenda





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Today’s Agenda




Basis point: A basis point is one hundredth of one percent, used chiefly in expressing differences of interest rates.Bond Ratings: All fund securities have been rated by a Nationally Recognized Statistical Ratings Organization such as Moody’s, Standard & Poor’s or Fitch. When a bond is rated by more than one organization, Smead Value Fund uses the highest rating available. Credit quality ratings pertain to the underlying securities of the fund and not to the fund itself. Book Value: A company's common stock equity as it appears on a balance sheet, equal to total assets minus liabilities, preferred stock, and intangible assets such as goodwill.Capital expenditure, or CapEx, are funds used by a company to acquire or upgrade physical assets such as property, industrial buildings or equipment.Cash Flow: A revenue or expense stream that changes a cash account over a given period.CDS Spread: The buyer of the protection in a credit default swap pays a premium to the seller, and this premium is called the CDS spread.Debt/Equity: A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity.Debt/Total Capital: A company's debt-to-capital ratio or D/C ratio is the ratio of its total debt to its total capital, its debt and equity combined.Earnings before interest, tax, depreciation and amortization (EBITDA) is a measure of a company's operating performance. Earnings per share (EPS) is the portion of a company's profit allocated to each outstanding share of common stock. Free Cash flow: measures the cash generating capability of a company by adding non-cash charges (e.g. depreciation) and interest expense to pretax income. Free cash flow per share is a measure of a company's financial flexibility that is determined by dividing free cash flow by the total number of sharesoutstanding. Free cash flow to sales (FCF Sales) is a valuation ratio that measures a company's surplus cash flow against sales revenues.Free cash flow yield is an overall return evaluation ratio of a stock, which standardizes the free cash flow per share a company is expected to earn against its market price per share.

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Definitions

The Mortgage Credit Availability Index (MBA Index) provides the only standardized quantitative index that is solely focused on mortgage credit. It is calculated using several factors related to borrower eligibility (credit score, loan type, loan-to-value ratio, etc.). These metrics and underwriting criteria for over 95 lenders/investors are combined by MBA using data made available via the AllRegs® Market Clarity® product and a proprietary formula derived by MBA to calculate the MCAI, a summary measure which indicates the availability of mortgage credit at a point in time.MSCI World ex US Index: A market capitalization weighted index designed to provide a broad measure of equity-market performance throughout the world.Intrinsic value is the actual value of a company or an asset based on an underlying perception of its true value including all aspects of the business, in terms of both tangible and intangible factors.Leverage: The relationship of debt to equity.Mutual Fund Portfolio Turnover: A measure of the trading activity in the fund's portfolio of investments. In other words, how often securities are bought and sold.Operating Cash Flow (OCF): refers to the amount of cash a company generates from the revenues it brings in, excluding costs associated with long-term investment on capital items or investment in securitiesPrice/Earnings (P/E): the ratio of a firm’s closing stock price & its trailing 12 months’ earnings/share. Price to tangible book value (PTBV) is a valuation ratio expressing the price of a security compared to its hard, or tangible, book value as reported in the company's balance sheet. Russell 1000 Index: The Russell 1000 Index is an index that represents the highest-ranking 1,000 stocks in the Russell 3000 Index, which represents about 90% of the total market capitalization of that index.S&P 500 Index: A market-value weighted index consisting of 500 stocks chosen for market size, liquidity, and industry group representation.

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Definitions

Past performance is no guarantee of future results.

Consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. The statutory and summary prospectuses contain this and other information about the Fund and is available at www.smeadcap.com or by calling 877-807-4122. Read carefully before investing.

Mutual fund investing involves risk. The Fund is non-diversified, meaning it may concentrate its assets in fewer individual holdings than a diversified fund. Therefore, the fund is more exposed to individual stock volatility than a diversified fund.

Information provided does not constitute investment advice and no investment decisions should be made based on any information provided. Information reflects the views of Smead Capital Management as of a particular time. Such views are subject to change without notice. Information regarding holdings, allocations and other allocations are for illustrative purposes only and may not be representative of current or future investments or allocations. This information is not a recommendation to purchase or sell a security or follow any strategy or allocation. Any forward-looking statements or forecasts are based on assumptions and actual results may vary from any statements or forecasts. While Smead Capital Management has used reasonable efforts to obtain information from reliable sources, no representations or warranties are made as to the accuracy, reliability or completeness of Fourth-party information presented in this material. This material is not to be duplicated or recreated without prior written consent of Smead Capital Management.

Frank Russell Company is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Russell Investment Group.

The Smead Value Fund is distributed by ALPS Distributors, Inc. ALPS Distributors, Inc. and Smead Capital Management are not affiliated.

Disclosures

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| Questions & Answers

Email [email protected] or call 877.701.2883

| SMEAD CAPITAL MANAGEMENT600 University Street, Suite 2412Seattle, WA 98101

SVF000276 Exp. 10/31/2017

mailto:[email protected]

Smead Value Fund - Smead Capital Management · 2017-07-27 · Source: BofA Merrill Lynch...

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Transcript of Smead Value Fund - Smead Capital Management · 2017-07-27 · Source: BofA Merrill Lynch...