Eaton Vance Emerald U.S. Value
Eaton Vance Emerald U.S. Value is a fine choice for US equity exposure, but it should cost less.
We've been speaking with Mach since his start on the fund, and have a healthy respect for his abilities. He's not a bottom-fisher, but he employs a consistent bottom-up approach to stock-picking, targeting companies with strong business franchises, growth prospects and balance sheets, and which are trading at a discount to the broad equity market. The cornerstone of Mach’s process is limiting losses and preserving capital, particularly in down markets. As a stop-loss trigger, if a stock falls further than 10% below its cost then it becomes a sell candidate. Morgan Stanley, for example, was sold on this loss trigger in the first quarter of this year. To control valuation risk, if a stock trades at a 25% premium to the market’s valuation, he starts to trim it back.
Mach does not take big sector bets relative to his Russell 1000 Value benchmark when assembling his 65-75 stock portfolio (+/- five percentage points is the limit). The fund also has a giant-cap bias which stems from favouring blue-chip securities, evident by its $28bn average market-cap. This has promoted a tilt towards value sectors, namely financials, with low exposures to growth sectors such as technology and healthcare.
However, despite the fund’s ties to value issues at a time when growth led the way, as well as holding troubled financials such as Citigroup and Merrill Lynch, Mach was successful last year at many other picks which more than offset any negative impact. For example, he bought Hewlett Packard just before it rallied in 2007 and stocked up on a strong and diversified range of energy performers which proved dead on, such as Hess Corporation. All told, the fund managed to close the year ahead of its peers by 2.7 and 9 percentage points, respectively – in fact its average category peer was in negative territory with losses to the tune of 2.7%.
We think highly of Mach and believe this is a very good choice for US equity exposure. However, it charges a TER of 1.82%, whilst the US sold version charges just 0.98%. It's also one of the pricier funds in its peer group of US-equity funds sold in the UK, and Eaton Vance needs to bring the charges down significantly for this to be a top choice.
