Firm’s 3-to-1 formula paying dividends
- January 28, 2012
For the past couple of years, the stock market has been rough sailing for investors and the firms that manage their portfolios. Unexpected crests have been followed by equally unexpected troughs while underlying currents sometimes seemed capable of sinking the whole enterprise.
TAMRO Capital Partners, though, has been able to “ride through the waves,” according to its CEO and chief investment officer, Philip D. Tasho.
Full steam ahead actually might be a better description of how the Alexandria firm has managed to grow and prosper despite the volatile market. In the nearly dozen years since three partners founded TAMRO, it has gone from $3.6 million in seed money to the management of $1.64 billion in assets.
TAMRO’s clients are mainly institutional investors and mutual funds, and the firm’s focus is on small-cap stocks and diversified equities. As of the end of the third quarter of 2011, Lipper Marketplace rated TAMRO’s small-cap strategy fund No. 7 among U.S. money managers in the growth and value equity category for its average rate of return across 40 quarters — 9.61 percent. TAMRO’s diversified equity portfolio fund was ranked No. 23 for its 2.94 percent rate of return across 12 quarters in the large-cap growth and value equity group.
TAMRO did not achieve these rates of return by trying to predict the erratic macro economy, Tasho says. Instead, it has recommended investments in mainly American companies that meet its formula of a 3-to-1 ratio of “sustainable competitive upside to downside risk.”
TAMRO derives that ratio through a five-step analysis of potential investments, looking at, among other factors, how a company stacks up against its competitors and the expertise and experience of its managers. For example, Nature’s Bounty, a manufacturer of nutritional supplements, got a “thumbs up” in part because it combined low-cost production with unusual acumen about the allocation of its capital.
TAMRO President Kathleen B. Neumann believes that employee ownership of the firm also has been critical to its growth. Twelve of its 16 employees have ownership in the company, and all are invested in TAMRO-managed mutual funds, which means that their personal finances are tied to judgments they make for their clients. That has been critical, Neumann says, to the long-term stability of the firm.
As of the end of December, TAMRO’s small-cap and diversified-equity portfolios had not performed as well as previously, down year-to-date 2.96 percent and 3.48 percent, respectively. They nonetheless still outperformed the Russell 2000 Index. Neumann remains confident that pursuing investments in high-quality but undervalued U.S. stocks will pay off in the long term.
“We are opportunistic,” Tasho says about TAMRO’s strategy. “We buy the best when they’re depressed.”