After a very bumpy flight, Isaiah and I touched down at Dallas Love Field, where we were greeted by warm evening weather and some good ol’ Texan hospitality.
The only thing exciting me more than all the meetings we had planned for the trip was the thought of going to Torchy’s Tacos for dinner. The food was great and the margaritas even better, but we were sure not to overindulge as we wanted to be on top form for our meeting with Joe Cossman at American Beacon (below).
Cossman is a product manager at the firm, responsible for building relationships with potential subadvisor candidates for American Beacon's funds. The firm has $60.9 billion in assets under management, with 35 subadvisors across 36 funds. The majority of its growth has been in its mutual fund and subadvisor line-up, but it also serves in a fiduciary role as an advisor to corporate pension plans for American Airlines.
So far this year, American Beacon has launched eight new mutual funds. Seven of those have been with firms to which it is already affiliated. For example, in July American Beacon launched two funds with Shapiro Capital Management – an Atlanta-based value boutique in which it acquired a stake in February.
This year, Cossman has noticed two main trends: increased consolidation of US asset managers and more European shops trying to break into the States through subadvisor relationships.
He explained that the firm partnered with TwentyFour Asset Management, a UK-based asset manager, for a multi-sector bond fund launch earlier this year, and is always on the lookout for undiscovered investment talent.
The product development team at American Beacon continues to expand its investment vehicle options and is currently exploring environmental, social and governance (ESG) investing.
With a jam-packed schedule, Isaiah and I wasted no time in ordering an Uber to head to our next meeting with James Hickey at HD Vest (above).
Having left Boston-based FDO Partners in June, Hickey is settling in nicely to his new role as chief investment strategist for broker-dealer HD Vest. The firm has $42 billion in assets under advisement, with $12 billion on its newly established RIA platform. It was bought up by Wells Fargo in 2001 and then spun out as a private company in 2011. In 2015, it was purchased by Blucora, a fintech company.
Hickey and his colleague John Hernandez are responsible for developing investment products for HD Vest’s network of 4,400 independent advisors. There are currently around 4,000 funds on the platform and 180 model portfolios, but Hickey is in the process of consolidating the list.
This year, he has seen increased growth in the firm’s separately managed account business.
After two very engaging meetings, Isaiah and I needed to recharge. Luckily, our third meeting of the day took us to Starbucks in the heart of Dallas’s upmarket Crescent Court. There we met with Brandon Pizzurro (below), an analyst within the portfolio management group at GuideStone Capital Management, advisor to the GuideStone Funds.
The group’s parent entity, GuideStone Financial Resources, is a subsidiary of the Southern Baptist Convention and invests using a socially responsible investment (SRI) lens to screen out certain 'sin stocks' such as alcohol, tobacco, pornography, abortion and gambling.
Pizzurro is on the public markets team with three others. The investment team has 11 members, performing all aspects of manager research, selection and the ongoing management of GuideStone’s funds. GuideStone currently has $12.5 billion in assets under management across a suite of subadvised mutual funds, making it the nation’s largest Christian-screened mutual fund family. The team works with 35 subadvisors across 41 strategies, and offers 16 mutual funds.
GuideStone traces its roots back to 1918 and originally focused on providing total benefit services to churches and religious organizations. Its first public fund launched in 2001, but until 2014, only those employed by the religious organizations using GuideStone’s total benefit services were able to purchase the funds. Over the past few years, Pizzurro has seen an uptick in demand from retail buyers, institutional investors and consultants, as investors become more aware of the impact of their money. GuideStone has been investing in this way for quite some time, so it has been encouraging for the team to see that there is demand for this type of investment now that the funds are publicly available, he said.
The team focuses on active management and believes in a multi-manager approach for its funds. Due to the scale of the investments, the subadvisors are more willing to adhere to SRI screens.
‘In this business, scale always helps, and asking managers to adhere to SRI screens is no exception,’ Pizzurro said. ‘The size of the allocations we are fortunate to be able to make on behalf of our investors allows us to access quality managers that are more than willing to work with us on the SRI front.’
When asked whether screening for 'sin stocks' sacrifices returns, Pizzurro said: ‘Over the long term there is not much discrepancy in returns between screened and unscreened investments. In fact, of the roughly 110,000 publicly-traded stocks globally, our screens only exclude about 500 names, so the universe remains large for our managers to invest within. The important consideration is that the end investor can be comfortable with how their investible dollars are being put to work.’
After quickly grabbing a bite to eat in Crescent Court, we were off to our next meeting of the day, with Joan Alexandre and Michael Hohlt at 1st Global (above). Hohlt and Alexandre perform investment manager research at the $9 billion broker-dealer, which was founded 25 years ago by Tony Batman. Today, the firm has 1,000 advisors.
The investment team consists of Alexandre, Hohlt, their colleague Jennifer Hutchins and their boss Martin Landry. The investment management research group oversees $6.9 billion in discretionary fee-based model portfolios on the investment management solutions (IMS) select platform. A total of 54 models are offered across five risk levels, which the team then populates with third-party funds. It runs a blend of active and passive models and also has a Dimensional Fund Advisors (DFA) model. The team members are all generalists and are currently in the process of building a more streamlined approach to their due diligence process.
Alexandre described feeling worried by the continued flows from active to passive. ‘The level of passive fund inflows suggests people have totally repriced risk, essentially believing equity investing is riskless – a position we do not agree with,’ she said.
Our next meeting was in Fort Worth. As luck would have it, our Uber arrived with a broken air conditioner, so Isaiah and I enjoyed a lovely hour-long car ride in the Texan heat. Once there, we met with Josh Fuller (above) at Diesslin Group, a $780 million RIA.
Fuller and his colleagues Brad Bourland and Charles Denison make up the investment team responsible for bringing on board the 12 existing funds currently used on Diesslin Group’s focus list.
The team primarily uses traditional mutual funds, while also including significant allocations to illiquid alternative investments when appropriate. Fuller and the team typically prefer long-term relationships with their managers, but Diesslin Group recently added a new fixed income fund from Ohio-based Diamond Hill Capital Management.
Beyond analyzing funds for the firm’s clients, Fuller has also conducted some top-secret bitcoin research.
The firm believes that bitcoin and blockchain technology have the potential to unleash significant economic opportunities, assuming the current hurdles they face are resolved as the technologies become more mainstream.
Fuller and the team have also noticed an increased demand for ad hoc research and due diligence services from their high-touch clients. To address this growing trend, Diesslin Group has launched a third service line to complement the existing financial planning and asset management services it already provides.
On our final day in Dallas, Isaiah and I headed to HFS Wealth Management to meet with Randall Horton (below), a portfolio manager at the $1 billion RIA.
Horton, Will Gray and Catherine Jackson make up the due diligence team and report to CIO John Howard. The trio want to see consistency from managers, and they practice what they preach too, with low turnover on their list.
However, Horton said there were several offenses that would lead to a manager being cut from the list, including concerns over their business, impairment of value, team changes or style drift. The team currently runs six models, which are populated by 17 funds – five fixed income funds, five domestic equity funds, four international equity funds and three alternative funds.
Horton said that passives and factor-focused strategies were here to stay, but that investors should not forget how active management protects against downside risk better than these kinds of funds.
‘Although the history of active management can be partially explained by factor tilts, one of the lasting legacies of quality active management is fundamental risk management and downside protection,’ he said.
‘When volatility eventually does return to markets, we think the passive trend could reverse as the tailwinds of money flows and market backdrop subside.
‘The demise of active management has likely been greatly exaggerated.’
On the way back to the airport the temperature hit 102 degrees. Luckily the air conditioning worked this time!
Next stop: Philadelphia