Of the three funds launched since the attacks on New York and Washington three years ago, none has produced a positive return over the past year
Three years after the attacks on New York and Washington, US funds continue to suffer.
Of three funds launched in the aftermath of the terrorist attacks, none has produced a positive return over the last year. Two of the funds - Artemis North American Growth and MFS US Growth Equity - have been among the worst-performing portfolios in their sector since launch.
The Artemis fund is ranked 80 out of 89 funds over the last year, 80 out of 90 funds over the year to date, 82 out of 90 over the last six months and 91 out of 91 over the last three years. Its underperformance has been consistent and its returns disastrous for any investors who bought the fund individually rather than as part of a diversified portfolio.
Like its performance, the fund's management team is located in the Deep South, with Artemis outsourcing the management of the portfolio to Atlanta-based investment house Montag & Caldwell, headed up by David Watson.
All the firm's portfolios are invested in the same stocks and are run according to the same investment process.
The only differences between the funds it runs are caused by variations in the levels of redemptions.
Montag & Caldwell holds just 30 to 40 stocks, which it picks from a shortlist of 150. The holdings are chosen by an eight-strong committee, which is made up of the firm's analysts and portfolio managers.
The shortlist is drafted by a proprietary software application that screens the 1,200-strong Compustat Database of companies with a market cap of more than $3bn. The screening process is rigid, with the buy and sell disciplines inflexible.
All 1,200 of the largest American companies are screened at least every two weeks and, sometimes, every day. Of the 1,200 companies available, 500 are ranked by decile, according to their fair value under the computer model.
Montag & Caldwell uses 11 different measures of assessing companies to arrive at its calculation of fair value. The four measures that the firm is happiest to talk about are profitability, balance sheet strength, growth and the quality of each stock's accounting.
Watson's team likes to project forwards for 10 years the normalised earnings for the companies in their model. They make expectations of the stocks' sustainable earnings growth rates - the highest rate that they will accept being 20%. The investment model discounts each stock's terminal value back to the present using a risk-adjusted discount rate.
Montag & Caldwell works on the assumption that the discount rate is the 10-year Treasury rate plus a premium of between 50 and 400 basis points - it goes up in increments of 50 basis points - based upon the investment house's assessment of each company's quality and the consistency of each one's earnings.
The firm's analysts research the best 150 stocks from the 500 that the computer model selects. The committee of analysts and managers - the Investment Policy Group - carries out the final stage of the stock selection process.
Given the depth of research carried out by Montag & Caldwell, why is the fund posting among the worst returns in its sector?
In essence, Artemis said the reason behind the fund's underperformance is its growth bias. Its rival MFS US Growth Equity, which has the same growth focus, has performed worse over the last year, losing 10.93% of its value, compared with the 8.17% loss at Artemis North American Growth.
Growth stocks in the US have underperformed value stocks since the fund's launch and Artemis North American Growth has been exposed to sectors that have been hammered in the market.
Two of its holdings, in Procter & Gamble and Gillette, are in the poorly performing consumer staples sector, for example, and make up 10.5% of the portfolio between them.