The risk-stabilizing assets, meanwhile, include government bonds, cash, commodities and derivatives. On the bond side, Hutchins likes plain vanilla U.S. Treasury securities, and these represent the fund’s top two holdings. They’re a good stabilizing force for the portfolio, and their yields are higher than those of most other developed market government bonds.
About three-quarters of the fund’s equity assets are in international stocks, which are more reasonably valued than U.S. securities. The fund’s decision-making process for selecting stocks starts with defining broad-based, multiyear “themes,” selecting stocks that are best equipped to benefit from them.
One of those themes is technology disruption, a strategy exemplified by fund holding Wolters Kluwer, a Dutch specialty publisher that has grown exponentially thanks to broad global reach made possible by the internet. Millions of health-care professionals, lawyers, accountants and bankers subscribe to its professional publications, and they’re not going anywhere else soon.
“These professionals are basically a captive audience, and they’re not going to mind if subscription prices go up one or two percent,” Hutchins says.
Another holding, AIA, is one of China’s largest insurance companies. With a presence in 18 markets in the Asia-Pacific region, it is well positioned to capitalize on the growing need for its products. “The stock may be volatile because of periodic concerns about Chinese regulators,” Hutchins says. “But ultimately it has a good reputation and a good relationship with Chinese authorities.” She sees high double-digit earnings growth for the company in the coming years.
Amazon, Facebook and the other so-called “FAANG” stocks are notably absent from the portfolio because Hutchins believes “they’re an overcrowded trade, too expensive, and have too much downside risk.” Instead, the fund seeks out more old school, overlooked technology players such as Cisco Systems. “The company is a global leader in networking systems, and its user base is so loyal that its business model would be very hard to disrupt,” Hutchins says. “It’s also got a lot of free cash flow, a superb balance sheet, and stock that is still fairly cheap.”