Letter from Bob Turner: seeing ourselves as others see us
O would some power the gift to give us
To see ourselves as others see us!
-- Robert Burns, 1786
Earlier this year we at Turner Investments were given the empowering gift of seeing ourselves as others see us. As part of the development of a rebranding program for our firm, J Rudman & Associates, an investment-management consulting firm, asked others -- mainly current and former clients and consultants -- for their perceptions of us as a firm. We wanted them to tell us candidly what they thought. We had never done this type of market research before, and we thought it would be illuminating, would help us to better see ourselves, warts and all. The bottom line: we believed that the process of seeing ourselves as others see us would help us to serve clients better and produce stronger investment performance.
Was it ever illuminating.
Our two biggest warts, we were told, involved the sheer number of our investment strategies and how we spend our time. Specifically, the outside world tended to perceive that 1) we had too many stock portfolios and 2) our senior portfolio managers, especially yours truly, were spread too thin. Perception of course is ultimately indistinguishable from reality, because perception becomes reality. So if outsiders view us that way, we felt compelled to accept and deal with that reality.
Over the years we had in fact added some customized portfolios to meet the needs of a client or clients. These customized portfolios appeared in industry databases and our marketing literature, creating the impression in some quarters that the number of our portfolios was proliferating like rabbits. Part of the problem, I think, is that we failed to explain that all these investments were merely variations on our basic small-cap, mid-cap, large-cap, and global/international growth portfolios. At any rate, we merged certain strategies that were essentially mirror images of each other. As a result, each of our small-cap, mid-cap, large-cap, and global/international growth portfolios generally now has just two versions, a concentrated version and a diversified version. Most important, we emphasized that all of these portfolios are managed as simply as possible -- according to one investment philosophy and one investment process and by one team, the 25 portfolio managers and global security analysts on our Growth Investing Team.
As for time management, our senior portfolio managers and I have tried to spend at least 95% of our time on investments. To reinforce that perception/reality and to give us even more time to focus on investing, we created a three-person Executive Management Group to handle the day-to-day management of our business: Matt Glaser, our chief of investment strategies; Tom Trala, our chief operating officer; and Jim Wylie, our newly hired chief marketing officer. Matt oversees the firm’s investment strategies and develops new investment and business opportunities. Tom manages the daily operations of our firm and its support functions, including legal, finance, compliance, human resources, information technology, and operations. Jim oversees our marketing, sales, and client-service activities and monitors the firm’s revenue and assets under management.
From a personal standpoint, I’m pleased to report that the formation of the Executive Management Group has enabled me to cut back on travel that’s unrelated to investments. That in turn has enabled me to avoid some potential pat-downs by Transportation Security Administration officials that passengers are finding so objectionable and that the news media have hyped as the latest sign of The End of Life in the United States As We Know It.
In any event, the point is that we listened to others’ perceptions/realities about us and made changes accordingly -- changes that we think will be for the better for our clients, our Growth Investing Team, and our firm.
Happily, we earned our share of positive perceptions/realities, too.
Perhaps the primary positive perception/reality was that our firm’s culture is highly regarded. As an independent, employee-owned firm, we pride ourselves on our nimble, non-bureaucratic, client-friendly operating style. Our employees, as owners, act like owners; they seek to do their jobs in ways that will strengthen our business and, most important, put our clients first. In the process, they work hard, they stay with us, they are ethical, and they collaborate with each other. One institutional consultant said about us, "If I found myself living on the East Coast, Turner is the one organization I would like to work for." In that same vein, I’m always gratified to hear our employees say this is the best place they have ever worked and they want to remain here for their entire career.
In a time when the values of some investment-management firms seem to change nearly as frequently as the window displays at department stores, when some firms tend to put their own aggrandizement ahead of service to clients, I think we take justifiable pride in sticking to our values. I like to think that the values we held at our founding nearly 21 years ago are the same values we hold today -- and will be the same values we hold 21 years from now.
Second, the perception/reality was that our pure growth-investing strategies, especially our global and long/short strategies, and our intensive research that supports those strategies are distinguishing characteristics of ours. Indeed, to strengthen our strategies and research, we’ve expanded our Growth Investing Team from seven investment professionals in 2000 to 25 today. Also, we’ve invested heavily in quantitative analysis to support our growth-stock investments. Finally, we’ve encouraged the members of our Growth Investing Team to visit companies frequently, traveling to trade shows, industry conferences, and other gatherings around the world to deepen our fundamental research.
Third, the perception/reality was that the senior members of our Growth Investing Team also serve as security analysts. We think that in investment management there’s no substitute for experience: extensive investment experience tends to translate into better investment decisions. Our lead portfolio managers have an average tenure of 11 years at our firm and 18 years in the industry. Unlike professional athletes, portfolio managers seem to get better as they get older. Investing wizards like John Templeton and Warren Buffett were only hitting their stride in their 40s and 50s. We want our own portfolio managers to continue putting the benefit of their ever-increasing experience to work here for many years to come.
Finally, there was a perception/reality that we are innovative. Certainly we are nothing if not perennial students of the market; we are always learning and open to promising new ideas from any source -- which I believe is the essence of innovation. To be sure, we need to continuously hone our capacity for innovation to identify great U.S. and foreign growth stocks. Because of our focus on growth investing and our sector and industry expertise, we believe we can identify and analyze foreign stocks effectively from our headquarters in Berwyn, Pennsylvania, and that doing so helps broaden our investment horizons. If we look at stocks from a global perspective, we find we tend to gain a better understanding of all the catalysts and competitive forces that can affect stocks for better or worse in any stock market.
For instance, as the global security analyst who covers data-networking and telecommunications-equipment companies at our firm, I need to be knowledgeable not only about the fundamentals of Cisco Systems, Juniper Networks, F5 Networks, Aruba Networks, and Riverbed Technology in the U.S., but also the fundamentals of Alcatel-Lucent and LM Ericsson Telephone in Europe and ZTE in China.As one of our position papers, Global stocks march to different drummers (first quarter 2006), concluded, growth-oriented market sectors such as technology tend to move in tandem with the global technology sector -- with technology stocks worldwide -- rather than with specific national stock markets. To put it another way: growth stocks in one country generally correlate more highly with the growth sectors of other countries than with their particular home stock markets. That indicates to us that our own growth-investing approach, in which our portfolio managers/global security analysts are assigned to cover specific industry groups and to pick stocks in those groups, is well-suited to global investing. It’s what helped give us confidence six years ago to open our global-growth portfolios, which, along with our international-growth portfolios, have earned solid records of outperformance from inception.
As a result we are one of the few pure growth managers in global-stock investing, and our international/global assets under management are growing. And, as noted, our global focus makes each of our analysts better at analyzing both U.S. and foreign stocks. We draw inspiration from the movie siren Mae West, who said she liked two kinds of men -- foreign and domestic. We feel exactly the same way about stocks -- we only like foreign and domestic shares.
The same kind of portfolio-management dynamic applies to our long/short portfolios, also started six years ago. We found that with our sector focus, in which our analysts on each sector team concentrate on specific industry groups of stocks, we could not only identify stocks with the strongest earnings for long positions but stocks with deteriorating earnings for short positions as well. In effect, our analysts benefited from stretching themselves because they had to know why certain companies’ earnings were rising and why other companies’ earnings were slumping in their sectors. As in global investing, our role as a pure growth manager is relatively rare in long/short investing, and it’s allowed us to gain assets in this market as well.
Part of the appeal of our long/short portfolios is that they meet clients’ expressed need for positive returns over time with lower volatility. We provide our clients with long/short portfolios in formats that offer lower fees, more transparency, and better liquidity than those of many of our peers. For instance, investors in the Turner Spectrum Fund, a multi-manager long/short mutual fund, can redeem their money daily at a price that’s publicly available, without cumbersome selling restrictions. Soon we will introduce three additional long/short mutual funds, which we think should reinforce our leadership in this field.
In conclusion, we are by no means perfect -- those surveyed have told us that -- but we are trying constantly to improve, to be nothing less than the best growth- investing firm in the world. To be the best growth-investing firm in the world -- that is the ultimate perception/reality we want to attain.
In the process, we have taken others’ perceptions of us to heart and made adjustments to bolster our core strengths: our distinctive, independent culture; our in-depth research that’s integral to our pure-growth style; and our innovativeness. After nearly 21 years in business, we know who we are and are comfortable with who we are. We think all of this should better enable us to achieve our mission, which remains the same as always: to deliver superior investment returns to our clients.
Happily, the stock market has been generating superior returns for some time now, since the bull market began in March 2009. From March 2009 to December 2010, the S&P 500 Index is up an annualized 36.69%, compared with the long-term average of about 10%. We think there are more good returns in the offing. According to JPMorgan Equity Research, correlations between sectors should decline sharply from the current 90% to 65% in the months ahead, as the bull market progresses. As a result, stock picking should become more critical to performance . . . and stock picking is of course our forte.
In our judgment, an auspicious environment for stock picking and the improvements to our firm that we have made as a result of seeing ourselves as others see us are a potent combination. Please be assured that we are intent on capitalizing on that combination to do our best for our clients in the New Year.
We offer you and yours our best wishes in 2011.
Chairman and Chief Investment Officer
Past performance is not a guarantee of future results.
The views expressed represent the opinions of Turner Investment Partners and are not intended as a forecast, a guarantee of future results, investment recommendations, or an offer to buy or sell any securities.
Turner Investments, founded in 1990 and based in Berwyn, Pennsylvania, is an investment firm that manages more than $17 billion in stocks in separately managed accounts and mutual funds for institutions and individuals, as of September 30, 2010.
Effective October 1, 2010, the Turner Funds are distributed by Foreside Fund Services, LLC, Portland, Maine. The investor should consider the investment objectives, risks, charges, and expenses carefully before investing. This information can be found in the prospectus. A free summary or statutory prospectus, which contains detailed information, including fees and expenses, and the risks associated with investing in this fund, can be obtained by calling 800.224.6312 or by visiting www.turnerinvestments.com/fundinfo. Read the prospectus carefully before investing. Past performance is no guarantee of future results. Mutual-fund investing involves risk, including potential loss of principal. This communication should not be considered an offer to provide any product or service in any jurisdiction that would be unlawful under the securities laws of that jurisdiction.
Diversification does not eliminate the risk of experiencing investment losses. As with all investments, there are associated inherent risks. The investment risks of the Turner Spectrum Fund are increased by the fund’s ability to focus its investments in one or more economic sectors, to invest in smaller and medium-capitalization companies, foreign companies, and initial public offerings. Also, the fund’s use of short sales, option strategies, and leverage may result in significant capital loss. There can be no assurance that the fund will be successful in limiting volatility.
As of November 30, 2010, Turner held in client accounts 6,020 shares of Cisco Systems, 3.7 million shares of Juniper Networks, 3.7 million shares of Aruba Networks, 1.6 million shares of Riverbed Technology, and 2.1 million shares of ZTE. Turner held no shares of Alcatel-Lucent and LM Ericsson Telephone.