By David Snowball

On February 28, 2020, Artisan Partners launched Artisan Select Equity Fund (ARTNX / APDNX / APHNX). The fund is managed by Artisan’s Global Value team.

The Global Value team managers are Daniel O’Keefe, Justin Bandy and Michael McKinnon. The senior member of the team is Mr. O’Keefe who joined Artisan from Harris Associates (advisers to the Oakmark funds) in May, 2002. Up until October 2018, Mr. O’Keefe was paired with David Samra on running the International Value and Global Value strategies. They, to put it gently, were awesome. Artisan notes that O’Keefe and Samra “were nominated six times (in 2008, consecutively from 2011-2014 and again in 2016) for Morningstar’s International-Stock Fund Manager of the Year award in the US. Mr. O’Keefe and Mr. Samra won the award for their joint management efforts in 2008 and in 2013 for the management of international-stock funds.” In October 2018, the team was split, with Mr. Samra maintaining custody of Artisan International Value (ARTKX) and Mr. O’Keefe overseeing Artisan Global Value. The funds have outperformed their peers by 4.7% and 4.3%, respectively, since launch. The translation, in both cases, is that the funds have very nearly doubled the returns of their peers over the long-term.

Artisan’s précis of the team’s approach:

The investment team seeks to invest in high-quality, undervalued businesses that offer the potential for superior risk/reward outcomes.

Undervaluation

• • • Determine the intrinsic value of the business
    • Invest at a significant discount to intrinsic value

Business Quality

• • • Strong free cash flow
    • High/improving returns on capital
    • Strong competitive positions

Financial Strength

• • • Strong balance sheets reduce potential for capital risk
    • Provides management ability to build value

Shareholder-Oriented Management

• • • History of building shareholder value

One might express curiosity that the Global Value team has been charged with a non-global value strategy. The public answer is that Artisan is responding to investor demand:

We have seen growing demand in the marketplace for US equity-focused investment strategies, and we believe our Global Value team is well-positioned to meet that need. The Global Value team has a track record of delivering solid performance results, and we anticipate the team will continue to add value through the Select Equity Fund. (Artisan Partners CEO Eric Colson)

Currently, about half of the Global Value portfolio is invested in US stocks. With the liquidation of Artisan’s small cap value fund and the desultory performance of its Mid Cap Value Fund (ARTQX), which has led its peers in only one of the past five and three of the past 10 years, there’s room in the Artisan lineup for an all-cap value fund.

So, the most obvious difference between the funds is that Select is a domestic equity fund and Global is, well, Global, There are two additional differences between the prospectus language for the two funds:

1. 1. Select is selective. “The Fund is non-diversified, which means that it may invest a greater portion of its assets in a more limited number of issuers than a diversified fund. The Fund will typically hold 20-30 securities.” Global Value’s prospectus doesn’t have comparable language. Global Value currently reports 40 stocks and a handful of derivatives that provide currency hedges.
   2. Select has the freedom to invest in smaller firms. Global Value’s prospectus stipulates “the Fund generally invests in US and non-US companies with market capitalizations of at least $2 billion at the time of initial purchase.” Select’s prospectus notes, “There are no restrictions on the market capitalizations of the companies in which the Fund may invest.”

There’s much to like here. Across the board, Artisan emphasizes a risk-awareness that might hinder its funds in the final stages of a bull market. The lead manager is distinguished and all of the Artisan partners invest heavily in their own funds. Finally, Artisan has an exceptional record for its newly-launched funds: pretty much all of them are very competitive out of the gate and end up establishing long-term records for above-average risk-adjusted returns.

The fund’s Investor share class charges 1.25%, which is traditional for Artisan and which tends not to fall much. The sibling Global Value fund, with $3 billion in assets and a 12-year record, charges 1.28%. The minimum initial investment is $1,000.

The Global Value team’s investment philosophy and process, which governs both of the funds it manages, is posted on the Artisan website.