Poplar Forest Partners is promising for risk-tolerant investors.
This article is adapted from the fund’s Morningstar Global Fund Report dated July 14, 2017. Central to this report is the Morningstar Analyst Rating, which evaluates funds on five key pillars.
A deepened understanding of the approach of Poplar Forest Partners
Harvey builds a roughly 30-stock portfolio using a contrarian and benchmark-agnostic approach. Heightened volatility comes from his proclivity to invest early in out-of-favor stocks like top-10 holding Signet Jewelers
Harvey won’t get every call right, but his background breeds confidence. Before founding Poplar Forest Capital in 2007, Harvey spent 16 years working at Capital Group, contributing initially as an analyst and beginning in mid-1996 as a portfolio manager to strong offerings, including American Funds Washington Mutual
At Capital Group, Harvey’s volatile style could be muted by combining it with other approaches, but here it is on full display. The fund finished in the category’s top 1% in 2013’s rally and in the top 3% in 2016, when value stocks came back into favor, but lost more than most in 2011 and the 2015–16 correction.
The fund has a competitive record since its year-end 2009 inception, though, and the strategy has a greater edge when evaluated from the 2007 start of the separate account. Risktolerant investors should give it a look.
Process Pillar: Positive
Harvey uses a contrarian, concentrated, and benchmark-agnostic approach. Working as part of a six-person investment team, he seeks midand large-cap stocks with the potential of at least 15% annualized returns over the next three to five years. That means he’s looking for businesses trading at a roughly 33% discount to his intrinsic value estimate over the shorter holding period and a 50% discount over the longer one. Harvey focuses on normalized free cash flow and requires that 85% of the fund’s assets are in investment-grade, dividend-paying companies. When betting on below-investment-grade firms, he insists on a greater margin of safety and only buys if his bear investment case does not involve the permanent loss of capital.