Investment Approach
The Victory RS Large Cap Alpha Fund seeks to produce superior long-term risk adjusted returns by investing in durable large capitalization companies that are led by strong management teams and are attractively valued.
Philosophy & Process
The RS Value Team seeks to invest in good companies, led by strong management teams that are attractively valued. Our decision to invest in any company starts with business analysis and with understanding the company’s unit-level economics. Our work on unit-level economics helps us determine the quality of the business and the headwinds it may face in the future. We are Return on Invested Capital (ROIC) focused investors and seek to invest in companies that can create shareholder value, due to an improvement in the returns of the existing assets, or attractive reinvestment opportunities. We are long-term investors who use our investment time horizon as a competitive advantage and are attracted to out-of-favor and/or misunderstood companies in the market.
The next step in our process is to assess the management team. Our evaluation of a company’s management team is critical to our investment decision. We regularly meet with management to gauge how they think about their business—Are they focused (and compensated) on growing earnings at any cost or do they understand return on invested capital and how value is created? Additionally, we perform detailed operational and strategic historical analyses of management’s decisions—looking at acquisitions and asset sales, repositioning of and changes to strategy, and measures of capital stewardship. This analysis provides us with the conviction to invest with strong management teams that are able to navigate through short-term market volatility and deliver long-term shareholder value.
The final step in our analysis is valuation. To the RS Value Team, value investing is buying a business at a discount to what we believe it is actually worth. We determine what a company is worth by assessing a company’s current share price versus its future cash flow streams or long-term net asset value based upon the management team’s plan for value creation. Return on Invested Capital (ROIC) is the lens by which we analyze that value creation. Our research has shown that, over time, stock price performance has a higher correlation to improving ROIC as opposed to traditional valuation measurements like price to earnings (P/E). We seek to invest in companies that can create shareholder value, due to an improvement in the returns of the existing assets, or attractive reinvestment opportunities. We pay close attention to a company’s financial strength, scrutinizing financial statements, and we run various financial models to understand our downside. This quantitative analysis gives us confidence in our investment thesis, and helps us determine at what stock price we are comfortable investing.
