While some investors are well-served by the proliferation of passive equity strategies over the last several years, other investors may seek a more active, differentiated approach. A successful active manager can navigate an increasingly volatile market, acting quickly to buy or sell stocks as opportunities arise.
Active managers may also identify disruptive growth catalysts and position their portfolios to ride these growth waves. Over the last two decades, trillion-dollar companies have been created on the back of disruptive technologies like digital commerce, smartphones, cloud computing, digital advertising, advanced semiconductors and artificial intelligence.
At Dana, we’ve always fancied ourselves as stock pickers. We launched our Unconstrained Equity Strategy for institutional investors five 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 Unconstrained Equity out 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 go-anywhere 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 food ordering and delivery platform Uber Eats, owned by Uber. While some view Uber Eats simply as a food distribution service, we see a three-sided marketplace of consumers, merchants (restaurants and increasingly 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 even the largest companies. For instance, Domino’s Pizza – long a holdout from third-party marketplaces like Uber Eats – recently joined the service and projects that a company-wide rollout on the platform could double its sales growth.
Aggressive but anchored
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, however, is the diversity of thought the six other equity portfolio managers on our investment team bring to the table. Some lean toward value while others lean toward growth. We believe sharing our perspectives, no matter how different, leads to better decision making. And better is what investors in this strategy expect.
“One of the things that anchors the Strategy is the diversity of thought the six other equity portfolio managers on our investment team bring to the table.”
In five years since its inception, Unconstrained Equity not only has met investors’ expectations, but also exceeded them.
With an annualized return of 29.00%, the Unconstrained Equity significantly outperformed the S&P 500 Index, which returned 15.69%.1 To put this into perspective, a $1 million investment in the Strategy five years ago would now be valued at nearly $3.5 million.
[1] Five years since inception, December 31, 2018
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.