Why All Cap Equity?
At Diamond Hill, our goal is to be an exceptional active investment boutique that our clients trust to deliver excellent long-term investment outcomes from a team aligned with their success.
High Concentration - Conviction-Based Investing
Our investment process has always led us to building high conviction, differentiated portfolios, which we believe is the best way to deliver great outcomes for clients over the long-term.
The Diamond Hill All Cap Select Strategy focuses its assets in 30-40 holdings that are usually higher quality, have the potential to grow their intrinsic value, and trade at an attractive valuation. Our top 10 holdings typically comprise over 40% of the portfolio.
EXHIBIT 1: TOP 10 HOLDINGS
| COMPANY |
SECTOR |
%WEIGHT |
| WESCO International, Inc.
|
Industrials
|
6.4 |
| American International Group, Inc.
|
Financials
|
6.3 |
| Mr. Cooper Group, Inc.
|
Financials
|
5.9 |
| Hanesbrands, Inc.
|
Consumer Discretionary
|
5.2 |
| Berkshire Hathaway, Inc. (Cl B)
|
Financials
|
4.9 |
| KKR & Co., Inc (Cl A)
|
Financials
|
4.5 |
| Facebook, Inc. (Cl A)
|
Communication Services
|
3.6 |
| Red Rock Resorts, Inc. (Cl A)
|
Consumer Discretionary
|
3.5 |
| W.R. Grace & Co.
|
Materials
|
3.3 |
| Kirby Corp.
|
Industrials
|
3.2 |
| Top 10 Total (%)
|
|
46.9% |
As of 6/30/2021.
High Active Share - Benchmark Agnostic
As active managers, building differentiated portfolios is critical to adding value for our clients. To paraphrase a common saying: Outperforming the market requires looking different than the market. Our investment principles and selective approach to portfolio construction result in a portfolio that is materially different from common client benchmarks and typically results in high active share.
EXHIBIT 2: ACTIVE SHARE - DIAMOND HILL ALL CAP SELECT VS. RUSSELL 3000® INDEX
Source: FactSet/Morningstar. As of 6/30/2021.
High Flexibility
We believe investors can benefit from an actively managed all cap strategy because managers can be nimble and move where the opportunities are. We look across the cap spectrum for the most compelling opportunities and act when those opportunities present themselves (Exhibit 3). In addition to market cap flexibility, we are agnostic to the traditional labels of growth vs. value. Our intrinsic value-based investment philosophy guides us to companies that are trading at a discount to our estimate of intrinsic value, which may lead us to what many consider “growth” areas of the market when they are trading at attractive prices.
Over time, the performance of large cap stocks relative to small caps can ebb and flow, creating investment opportunities along the way. In fact, large and small have traded leadership over the past 20 years resulting in roughly the same number of outperforming periods (Exhibit 4). While size leadership can go on multi-year runs, e.g., small from 2001-2004 and large from 2017-2020, investors tend to see a reversion to the mean over the long term.
EXHIBIT 3: HISTORICAL MARKET CAP EXPOSURE IN ALL CAP SELECT
Source: FactSet. As of 6/30/2021.
EXHIBIT 4: CALENDAR YEAR RETURNS OF THE RUSSELL 1000 VS. RUSSELL 2000 INDICES
Source: Russell. As of 6/30/2021.
Index data source: London Stock Exchange Group PLC. See diamond-hill.com/disclosures for a full copy of the disclaimer.