Emma Wall: Hello and welcome to the Morningstar series, "Why Should I Invest With You?" I'm Emma Wall and I'm here today with Grant Bowers, manager of the Franklin U.S. Opportunities Fund.
Hello Grant.
Grant Bowers: Hello.
Wall: So, we're looking at U.S. equities and I think the thing with investors is they sometimes confuse U.S. equities with the S&P 500. S&P 500 is, of course, U.S. equities, but it's not all the U.S. equities, is it?
Bowers: No, it's not. The U.S. market is actually quite broad, quite diverse. I think investors really need to understand when they think about investing in just a passive or an ETF tracker that you're actually not going to generate any alpha in the market and to outperform the market you really need to be an active investor and look for opportunities across all industries, across all sectors and across all market caps.
Wall: It's very similar to the concept of the FTSE 100. FTSE 100, of course, if you just want the performance of the top 100 stocks in the U.K. then it does probably makes sense to go for a passive strategy. However, if you want to unearth the growth stories, the smaller companies, the things that are going to deliver for the next five, 10, 15 years, active can really deliver and that's the case with the Russell 3000 and with your fund.
The Russell 3000 is a smaller caps index and that's up 6% so far this year, but your fund is up 12%. So, how have you managed to do that?
Bowers: We've really done that by looking across the entire market cap spectrum and across all industries. So, the way we think about it is not just buying the largest companies in an index but really looking to uncover companies that we think are high quality businesses that can deliver sustainable earnings and cash flow growth over a multiyear time period.
So, we are looking at owning businesses three to five years and businesses that we think will outperform the market over the business cycle. That allows us to step back a little bit from the day-to-day trading dynamics that we see and the volatility we see in the market and really think long term and really be long-term investors in the companies we own.
One of the ways that we have achieved the performance we have this year is really by being active managers, not just following the indices. When you do look at the S&P 500 or the Russell 3000, you see that those indices are dominated by a number of companies that have very large positions in the top holdings. So, what you are really getting is not as diverse a portfolio as you may think and we think by being active managers and running a diversified portfolio that we can actually deliver better results over time.
Wall: Where are you seeing the biggest opportunities at the moment? You said not in perhaps the biggest companies in the index. So, what have you found?
Bowers: Well, we found that it's not often the largest companies that deliver outperformance over time. Right now we are finding a number of opportunities in the healthcare space. We are finding some attractive opportunities in consumer and technology, classic growth sectors, where we are finding high-quality growth companies that we think are going to deliver great returns over the next three to five years.
Wall: Grant, thank you very much.
Bowers: Thank you.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
