This 8% Yielder Is A Solid Diversifier
But It Hasn’t Shown The Ability To Deliver
Every week, we’ll profile a high yield investment fund that typically offers an annualized distribution of 6-10% or more. With the S&P 500 yielding less than 2%, many investors find it difficult to achieve the portfolio income necessary to meet their needs and goals. This report is designed to help address those concerns.
The Liberty All-Star Growth Fund (ASG) may not be as big or as popular as its sister fund, Liberty All-Star Equity Fund (USA), but it’s got a long track record in its own right. Recent returns, of course, have been juiced by a 15-month run where growth has substantially outperformed value. The combination of the U.S. economy avoiding a recession (for now at least) an end to the Fed’s interest rate hiking and a market where growth stocks, especially mega-cap growth, have been the only game in town.
We may be entering a regime where growth dominance could finally be ending, but we’ve been talking about that for some time. Valuations haven’t mattered and the fact that the soft landing has been achieved (again, for now at least) has investors trying to ride the gravy train for as long as they possibly can. Income seekers are probably enjoying the combination of growth & yield they’re getting out of this fund, but a reversal of conditions could expose a fund that’s positioned the wrong way at the wrong time.
Fund Background
ASG’s investment objective is to seek long-term capital appreciation. It combines three growth style investment managers, each with a distinct capitalization focus (small-, mid- and large-cap) selected and continuously monitored by the fund’s investment advisor. The small-cap segment focuses on companies with enduring competitive advantages and high, sustainable earnings growth. The mid-cap piece focuses on companies with improving fundamentals, emphasizing earnings growth consistency, free cash flow, and solid balance sheet metrics. The large-cap sleeve targets companies with predictable, sustainable earnings and cash flow growth over the long term.
In general, I like the multi-manager approach used by the fund as it helps take advantage of three distinct views on the market. In addition, the varying selection strategies used by each of the management teams helps to diversify some risk away and focus on quality. The all-cap nature of the portfolio is a positive feature of the fund, although many will probably want something more narrowly focused on large-caps. Small-caps, of course, are going to be more economically sensitive than large-caps. If we’re about to enter a broader risk-off period where growth slows, the labor market softens and interest rates are forced to remain higher to deal with inflation, small-caps could continue to lag for a while longer. On the recovery upswing, small-caps tend to do much better and investors should want some exposure to that.
Keep reading with a 7-day free trial
Subscribe to The Lead-Lag Report to keep reading this post and get 7 days of free access to the full post archives.