While many investors rely on passive equity strategies, others are seeking a more active investment approach that can deliver higher return potential. A successful active manager can respond quickly to market opportunities, identify disruptive growth catalysts, and invest in companies leading transformative change. Over the past two decades, trillion-dollar companies have emerged by harnessing disruptive technologies, including:
Active managers who can spot these trends early and build high-conviction portfolios are often best positioned to capture outsized growth while managing market volatility. At Dana, we’ve always considered ourselves stock pickers. We launched our Unconstrained Equity Strategy for institutional investors six years ago in response to rising demand for a concentrated portfolio of best ideas. Since then, the Strategy has differentiated itself with good outperformance and low correlation to the broader market.
We’re excited to roll out Unconstrained Equity to a broader set of clients. As Lead Portfolio Manager of the Strategy, I’m happy to share more details about our investment approach and historical returns below.
A flexible investment approach
We launched our Unconstrained Equity Strategy for institutional investors at the end of 2018 in response to rising demand for a portfolio with lower correlation to the broader market and higher return potential.
We started with a concentrated portfolio of best ideas from across our growth strategies —companies with disruptive business models, adaptability, and innovation leadership. However, recognizing that growth-oriented investing isn’t always in favor, we wanted the strategy to be adaptable as well. So we implemented a flexible investment mandate that gives us the latitude to invest not only in companies exhibiting growth traits but also those embodying value characteristics.
With only 15 to 30 holdings, it is a portfolio built with conviction. Free from style confines or sector restrictions, the strategy truly can go anywhere, often uncovering disruptors in unexpected places.
Take General Electric, a 130-year old industrials conglomerate that made a name for itself in light bulbs and washing machines before diversifying into aerospace, power, and health care. By many people’s standards, GE isn’t a disruptor. But in 2018, with roughly $104 billion debt, the company brought in a new CEO who shook things up.
He “disrupted” and restructured GE’s portfolio of businesses and began chipping away at its debt, reducing it by $100 billion in just under five years. We patiently watched his progress and initiated a position in GE in late 2023, optimistic that its streamlined operations, innovation in aerospace engines, and strengthening travel trends will lift the stock.
A more obvious disruptor in the portfolio – and a great example of the transformative power of innovation – is online delivery platform DoorDash.
While some view DoorDash simply as a food distribution service, we see a three-sided marketplace of consumers, merchants (restaurants and increasingly grocers and other retailers), and drivers brought together by an innovative app. The marketplace grows stronger with each new participant and has become a must-have distribution channel for an increasingly wide array of well-known companies. For instance, recently announced partnerships include a new online ordering interface with McDonald’s, a comprehensive grocery delivery roll-out with Kroger, and a well-timed pre-holiday retail partnership with Old Navy.
Seeking growth while managing risk
The Unconstrained Equity Strategy isn’t for everyone. With higher risk relative to our diversified equity strategies, we make sure to set clear expectations with our clients.
One of the things that anchors the Strategy is a reliance on price targets for individual stocks. When investing in disruptive technologies, there can be a tendency to “fall in love” with a particular theme (e.g. artificial intelligence) while ignoring valuation or other fundamental evidence. As holdings approach their price targets, the Strategy will typically trim these holdings and reallocate to more attractive opportunities. When price targets are exceeded, stocks are typically sold. Price targets allow for a dynamic reallocation process while maintaining a strong valuation-based risk discipline, which Dana has long been known for.
“Price targets allow for a dynamic reallocation process while maintaining a strong valuation-based risk discipline, which Dana has long been known for.”
In six years since its inception, Unconstrained Equity not only has met investors’ expectations, but also exceeded them.
With an annualized return of 29.25%, the Unconstrained Equity Strategy significantly outperformed the S&P 500 Index, which returned 17.53%.1 To put this into perspective, a $1 million investment in the Strategy five years ago would now be valued at over $5 million.
Unconstrained Equity’s emphasis on businesses that are leading change in their industry resonates deeply with our firm’s forward-thinking approach. We have 43+ years of ingenuity behind our actively managed equity and fixed income strategies, allowing us to challenge norms and offer products and services investors won’t get elsewhere.
Frequently Asked Questions (FAQ)
What is the Dana Unconstrained Equity Strategy?
The Unconstrained Equity Strategy is an actively managed investment portfolio that focuses on a concentrated selection of 15 to 30 high-conviction stocks. It aims to capture growth from disruptive and innovative companies while remaining flexible enough to invest in value-oriented opportunities.
Who is the Unconstrained Equity Strategy designed for?
This strategy is suited for investors seeking higher return potential and lower correlation to the broader market, with a willingness to accept higher relative risk. It is ideal for those interested in concentrated, actively managed portfolios rather than passive index tracking.
How does the strategy identify disruptive companies?
The strategy focuses on companies demonstrating transformative innovation, adaptability, and market leadership. Examples include technology disruptors, companies reshaping traditional industries, or established firms undergoing strategic restructuring.
Can the Unconstrained Equity Strategy invest across different sectors?
Yes. The strategy has a flexible mandate and is not confined by sector or style. This go-anywhere approach allows the team to invest in growth or value opportunities wherever they appear.
What is the historical performance of the Unconstrained Equity Strategy?
Since its launch in 2018, the strategy has delivered an annualized return of 29.25% gross of fees, significantly outperforming the S&P 500 Index, which returned 17.53% over the same period.
How does Dana manage risk in the strategy?
Risk is managed through rigorous research, diverse portfolio manager perspectives, and a focus on high-conviction positions. The team emphasizes collaboration and debate to ensure investment decisions are well-vetted and anchored in thoughtful analysis.
Why choose an actively managed strategy over passive investing?
Active management allows the portfolio team to identify disruptive growth opportunities, respond to market volatility, and adjust allocations as conditions change—advantages not available through passive index strategies.
How can investors access the Unconstrained Equity Strategy?
Originally launched for institutional investors, the strategy is now available to a broader range of clients as an actively managed ETF. Interested investors can contact Dana Investment Advisors to learn more about eligibility and account setup.