Deep Value Investing with a Quality Growth Edge

During their recent episode, Carlisle, Taylor, and Andrew Wellington discussed Deep Value Investing with a Quality Growth Edge. Here’s an excerpt from the episode:

Tobias: I like to hear that. Let’s discuss very quickly. Can you talk a little bit about Lyrical, and perhaps, your focus and how you may differ from other firms?

Andrew: Yeah. Lyrical Asset Management is a classic value investing investment boutique. We’re based in New York. We manage just under $8 billion. Our longest product is our US value portfolio. We’re now in our 17th year managing that product. And in 2009, we expanded what we do and we applied the exact same process we’ve been running in the US to the developed markets outside the US. So, for the last five plus years, we’ve also been running an international combined with our US portfolio as our global portfolio.

We also have one other variant which is a subset of our global stock portfolio. Our companies that are also making a positive impact from an environmental, an ESG perspective. And so, we have this even more concentrated product we call GIVES, Global Impact Value. That again, it’s a subset of our global stocks that are making quantifiable provable impacts. It really is the only value style product that we can find out there in that impact investing space.

Tobias: How do you characterize your process or your strategy? What are you looking at that distinguishes you from other people?

Andrew: So, I think what really distinguishes Lyrical from all of our peers, and maybe take a big step back, we’re still, what I would call, deep value investors. I know that’s a dirty word these days. People are running away from that label. [Tobias laughs] We will gladly be the last people out there labeling themselves as deep value. The average PE of our portfolio at year end was 12. That’s about 10 multiple points less than the S&P 500. That’s real value. Not one of these value and name only products out there that’s really more GARPy. But what’s really– [crosstalk]

Jake: I know. That’s a good one. I have heard that.

Andrew: [chuckles] VINO, VENO

Jake: Yeah. Yeah.

Andrew: What’s really different about us versus our other deep value peers though, is what we call, our uncommon combination of both deep value but also having quality growth. So, if you look at the growth profile of the stocks in our portfolio, you look over the last economic cycle, the companies we own, even though they have just a 12 PE, they’ve compounded their earnings on average at 9% a year. Now, that may not sound that impressive to a growth investor, but the S&P 500 has only done seven, and the value index has only done five. So, we have found companies, we call them the gems amid the junk, companies with earnings growth as good or better than the S&P 500, but still trade at huge multiple discounts.

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