Management & Investment Process

Management

The investment team leverages high degrees of experience and knowledge within a disciplined investment process. Learn more about the Team.
  • Christopher Smith
  • Portfolio Manager
  • 15Years Investment
    Experience

Investment Process

The team’s investment approach is based on thematic idea generation, a systematic framework for analyzing companies and proactive risk management. Utilizing this approach, the team seeks to construct a focused portfolio designed to maximize alpha while limiting downside risk over the long term.

Thematic Idea Generation

  • Identify inflections in multi-year trends caused by changes in supply/demand dynamics, societal behavior, market conditions, technology, laws/regulations and business models, among other variables—these can lead to powerful re-ratings of industries and companies
  • Find areas where the team’s views on industry fundamentals differ from consensus estimates—a key element in alpha generation

Systematic Analytical Framework

  • Apply a systematic framework for analyzing companies across sectors and themes, creating a repeatable and methodical decision-making process
  • Focus on multi-year earnings power differentiation, expected outcome scenario analysis, return on invested capital and discounted cash flow valuations using the team’s proprietary company models
  • Utilize internally developed visual outputs to consistently evaluate positions across the portfolio

Proactive Risk Management

  • Incorporate risk management into all stages of the investment process
  • Evaluate metrics including crowding, correlation, volatility, stress tests, liquidity, factor analysis and macro drivers, in order to inform portfolio construction and position sizing
  • Where appropriate, use various instruments, such as options, in an effort to magnify alpha and minimize downside

Other Strategies Managed

Investment Results (%)

As of 31 October 2018 QTD YTD 1 Yr 3 Yr 5 Yr 10 Yr Inception
Composite — Gross -4.20 16.95 23.43 32.00
Composite — Net -4.28 16.00 22.22 30.71
S&P 500® Index -6.84 3.01 7.35 11.07
As of 30 September 2018 QTD YTD 1 Yr 3 Yr 5 Yr 10 Yr Inception
Composite — Gross 7.72 22.07 35.10 38.32
Composite — Net 7.46 21.18 33.79 36.98
S&P 500® Index 7.71 10.56 17.91 17.49

Annual Returns (%)

12 Months Ended 30 September 2014 2015 2016 2017 2018
Composite — Gross 35.10
Returns for periods less than one year are not annualized. 

Past performance does not guarantee and is not a reliable indicator of future results. Current performance may be lower or higher than the performance shown. Composite performance has been presented in both gross and net of investment management fees. The Thematic Strategy’s investments in initial public offerings (IPOs) made a material contribution to performance. IPO investments may contribute significantly to a small portfolio’s return, an effect that will generally decrease as assets grow. IPO investments may be unavailable in the future. 

Investment Risk: Investments will rise and fall with market fluctuations and investor capital is at risk. Investors investing in funds denominated in non-local currency should be aware of the risk of currency exchange fluctuations that may cause a loss of principal. These risks, among others, are further described in the Important Disclosures section which should be read in conjunction with this material. 
Top 5 Issuers
(% of net assets as of 31 October 2018)
Microsoft Corp (Software) 5.7
IHS Markit Ltd (Data Monetization) 5.4
CME Group Inc (Data Monetization) 5.2
Automatic Data Processing Inc (Cash Flow Inflection) 5.2
Danaher Corp (Life Sciences) 4.7
Total 26.2%
Portfolio Statistics
(as of 31 October 2018)
Number of Companies 31
Top 5 Issuers (% of net assets) 26.2%
Non-US companies (% of net assets) 10.9%
Weighted Avg. Market Cap (Billions) $115.2
Weighted Avg. ROE 15.6%
Weighted Avg. LT EPS Growth Rate (3-5 Yr) 19.8%
Weighted Avg. P/E (FY2) 22.3X
Active Share 90.3%
Market Cap Distribution
(% of net assets as of 31 October 2018)

$ in billions
75.0+ 25.4
25.0–75.0 33.2
5.0–25.0 22.0
0.0–5.0 5.4
Not Applicable 0.3
TOTAL 86.3%
Portfolio Exposure by Theme
(% of net assets as of 30 September 2018)
Data Monetization 21.8
Communications Infrastructure 18.5
Cash Flow Inflection 18.4
Defense 13.6
Life Sciences 10.9
Software 9.9
Video Games 2.9
Total 96.0%
Sector Diversification
(% of net assets as of 31 October 2018)
Communications 18.2
Consumer Discretionary 4.7
Consumer Staples 1.9
Energy
Financials 10.6
Health Care 14.2
Industrials 10.2
Materials 7.9
Technology 18.8
Utilities
Total 86.3%
% of net assets represents the portfolio’s exposures based on the economic value of investments and options are delta-adjusted. Cash and cash equivalents represented 20.53% of net assets. Statistics shown exclude ETFs and ETF options, which represented 0.00% and 0.00% of net assets, respectively. 

Ocean Outdoor Ltd was not trading as of 31 October 2018 and is excluded from weighted avg. market cap, weighted avg. ROE, weighted avg. LT EPS growth rate and weighted avg. P/E.

 

Portfolio Manager Viewpoints

  • A Systematic Approach to Differentiation
  • View PDF
  • Portfolio Highlights—Artisan Thematic Strategy
  • View PDF
A non-diversified portfolio may invest a larger portion of assets in securities of a smaller number of issuers and performance of a single issuer may affect overall portfolio performance greater than in a diversified portfolio.  The portfolio’s use of derivative instruments may create additional leverage and involve risks different from, or greater than, the risks associated with investing in more traditional investments.  High portfolio turnover may adversely affect returns due to increased transaction costs and creation of additional tax consequences.  Securities of small- and medium-sized companies tend to have a shorter history of operations, be more volatile and less liquid and may have underperformed securities of large companies during some periods.  International investments involve special risks, including currency fluctuation, lower liquidity, different accounting methods and economic and political systems, and higher transaction costs. These risks typically are greater in emerging markets.  These risks, among others, are further described in Artisan Partners Form ADV, which is available upon request. 

Unless otherwise indicated, strategy characteristics relate to that of a representative account managed within the investment composite. It is intended to provide a general illustration of the investment strategy and considerations used by Artisan Partners in managing that strategy. Individual accounts managed to the strategy may differ, at times significantly, from the reference data shown due to varying account restrictions, fees and expenses, and longevity periods, among others. Where applicable, this information is supplemental to, and not to be construed with, a current or prospective client's investment account information.

Performance Source: Artisan Partners/S&P®. Net-of-fees composite returns were calculated using the highest model investment advisory fees applicable to portfolios within the composite. Fees may be higher for certain pooled vehicles and the composite may include accounts with performance-based fees. All performance results are net of commissions and transaction costs, and have been presented gross and net of investment advisory fees. Dividend income is recorded net of foreign withholding taxes on ex-dividend date or as soon after the ex-dividend date as the information becomes available to Artisan Partners. Interest income is recorded on the accrual basis. Performance results for the Index include reinvested dividends and are presented net of foreign withholding taxes but, unlike the portfolio's returns, do not reflect the payment of sales commissions or other expenses incurred in the purchase or sale of the securities included in the indices. 

Idiosyncratic Positions are issuers held outside of a theme. Theme categorizations are at the sole discretion of the team. Themes and constituents are as of the date indicated and subject to change. Portfolio sector classifications are defined by the investment team and may differ substantially from the Bloomberg Industry Classification System (BICS) classifications. Upon request, Artisan Partners will provide the portfolio’s sector breakdown according to BICS methodology. 

Data & Statistics Sources: Artisan Partners/FactSet/Bloomberg/BICS. Sector exposure classifications are defined by the investment team and may differ substantially from the Bloomberg Industry Classification System (BICS) classifications. Artisan Partners may exclude outliers when calculating portfolio statistics. If information is unavailable for a particular security Artisan may use data from a related security to calculate portfolio statistics. Securities of the same issuer are aggregated to determine a holding’s weight in the portfolio. Cash weighting includes cash and cash equivalents. Totals may not sum due to rounding. 

S&P 500® Index measures the performance of 500 US companies focused on the large-cap sector of the market. The index(es) are unmanaged; include net reinvested dividends; do not reflect fees or expenses; and are not available for direct investment. The S&P 500 Index is a product of S&P Dow Jones Indices LLC (“S&P DJI”) and/or its affiliates and has been licensed for use.  Copyright © 2017 S&P Dow Jones Indices LLC, a division of S&P Global, Inc. All rights reserved. Redistribution or reproduction in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC. S&P® is a registered trademark of S&P Global and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). None of S&P DJI, Dow Jones, their affiliates or third party licensors makes any representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and none shall have any liability for any errors, omissions, or interruptions of any index or the data included therein.

All options positions are displayed on a delta-adjusted basis. Delta adjustment is necessary to properly account for the sensitivity of options to changes in price of the underlying security, as well as for making exposure comparisons to the underlying security (measuring options exposure as premium will understate the economic exposure and risk, while measuring exposure as notional value will overstate the economic exposure). Delta-adjusted exposure is a measure for the exposure on the equity market created by the options. This estimation of the equity exposure of a portfolio is only approximate. The delta-adjusted exposure changes over time and is a function of the size and the precise composition of the options portfolio. 

Market Cap is the aggregate value of all of a company's outstanding equity securities. Weighted Average is the average of values weighted to the data set's composition. The Thematic portfolio Weighted Avg. P/E is a Weighted Harmonic Average. Weighted Harmonic Average is a calculation of weighted average commonly used for rates or ratios. Return on Equity (ROE) is a profitability ratio that measures the amount of net income returned as a percentage of shareholders equity. LT EPS Growth Rate is the average of the 3-5 year forecasted EPS growth rate of a company. Price-to-Earnings Ratio (P/E Ratio) measures how expensive a stock is. Earnings figures used for FY1 and FY2 are estimates for the current and next unreported fiscal years. Active Share is defined as the percentage of a portfolio that differs from its benchmark index. Active Share can range from 0% for an index fund that perfectly mirrors its benchmark to 100% for a portfolio with no overlap with an index. Active Share is not delta-adjusted and includes cash, cash equivalents, ETFs and ETF options.