NCM Insights - Phil D’lorio - NCM US Dividend Class

February 13, 2020

1) There was significant volatility in 2019 and the Fund finished near the top of its category. Can you talk about a few of the companies in the portfolio and how that affects your risk rating?

2019 performance for the NCM US Dividend Class can be primarily attributed to stock selection. There were several stocks in the Fund that had a strong year and this performance extended across a number of different sectors. Examples include Apple (+89%), S&P Global (+62%), Microsoft (+58%), Sherwin Williams (+50%), JPMorgan (+47%), and Ross Stores (+41%). All of these companies are well-established market leaders and they each have very strong balance sheets. Investing in these types of companies is consistent with my investment philosophy and it allows me to stay within my desired risk appetite.

2) In your 2020 outlook, you wrote the U.S. economy and corporate earnings are expected to grow. How will you best take advantage of this growth while keeping the Fund “medium risk”?

I will take advantage of the growth while maintaining my desired level of risk by following a very consistent investment process. This process will result in a portfolio of companies that have attractive business models that are run by shareholder friendly management teams. I am most interested in companies that have above average growth prospects, strong free cash flow generation, and strong balance sheets.

3) Please go through the cap sizes for the 32 stocks you currently hold. Is your cap size allocation meant to stay within a particular range or just a result of your top 32 picks from the analysis?

There are 18 companies with market caps above $100 billion, 11 companies with market caps between $20 billion and $100 billion, 2 companies with market caps between $10-20 billion, and 1 company with a market cap below $10 billion. The portfolio is currently positioned with a high weighting in large cap stocks. This is a function of the Fund’s bottom up process and where the best opportunities have been found. The market cap allocation is not designed to stay in a particular range. If opportunities that meet my criteria can be found in small and mid-cap stocks, and they represent better opportunities than what is currently owned in the portfolio, I absolutely have the willingness to increase the allocation of the Fund towards small and mid-cap companies.

4) What are the top five weighted holdings at the moment? Have they changed from early 2019?

The top five holdings in the Fund have a current weight of approximately 29% and are as follows:

  1. Microsoft
  2. Alphabet
  3. S&P Global
  4. Visa
  5. Apple

Two of the five companies noted above were also top five holdings in early 2019 (Microsoft and Visa). Alphabet and S&P Global were both top 10 holdings in early 2019 but not in the top five. Apple was not held at the beginning of 2019. The Fund started accumulating shares of Apple in early February 2019 at a price in the high $160 range.

5) In mid 2019 you were underweight Energy and Materials with no real estate exposure. Are you still underweight in these sectors and/or are you currently looking at adding names from the latter space?

I am still underweight in these sectors. In my opinion, Energy has long term structural challenges so I have been underweight the sector for quite some time. There are some very good companies within Materials and we own one called Sherwin Williams but I’m still underweight the sector. I don’t own any companies in real estate at the moment but I am following a few stocks in the sector.

Learn more about the NCM US Dividend Class by clicking here.

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Phil D’IorioPortfolio Manager, U.S Equity - Cumberland Investment Counsel Inc. Affiliate of NCM Asset Management

Phil D’Iorio is a Portfolio Manager in U.S. equities and is the Lead Manager of the NCM Core Global and NCM Core American. Phil is a CFA charterholder and holds a Bachelor of Commerce degree from Western University and an…

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