PORTFOLIO SPOTLIGHT
we ’ ve gotten more liberal on that , and it has helped us in the end .”
The fund recently had nearly double the exposure to the industrials sector than its benchmark , the Russell Midcap Index . One reason for that is Christensen ’ s expansive definition of what the sector comprises .
Consider that one of the industrial sector stocks is Allegion , a maker of commercial and consumer security systems , while another is Equifax , the credit score company that Christensen acknowledges thing is how we work with our analysts . We have a good number of analysts helping us .”
He and Stone are analysts as well — Christensen covers healthcare and industrials while Stone covers real estate and consumer discretionary names . The portfolio ’ s concentrated holdings and low turnover aside , Christensen says the two managers keep busy by constantly monitoring their companies to spot any erosion in their competitive advantage .
“ The biggest reason that prompts us
The portfolio ’ s concentrated holdings and low turnover aside , Christensen says the two managers keep busy by constantly monitoring their companies to spot any erosion in their competitive advantage .
could be a fit in the financials sector as well . Other companies classified under industrials within the portfolio are Heico , an aerospace and electronics company ; Lennox , which makes air conditioning units ; freight company Old Dominion ; water treatment company Pentair ; and Verisk , a data analytics provider to the financial industry .
“ They ’ re all very different end markets and business models , but they all have the same type of characteristics we look for in a high-quality business ,” Christensen says . “ It ’ s a more liberal characterization for industrials than the traditional GICS industrial category ,” he adds , referring to the Global Industry Classification Standard widely used to categorize companies by sectors and industry groups .
Consistency
Christensen and Stone have known each other since they both worked at Doheny Asset Management in L . A . Stone came over to Kayne Anderson Rudnick in 2000 , and Christensen followed the next year . As co-managers , they need to agree on all buy and sell decisions .
“ He and I have worked together for many years and have a great relationship ,” Christensen says . “ The other important to sell a stock is something that changes with the business ,” he explains . “ That means our initial investment thesis was incorrect or , more likely , the company ’ s advantage starts eroding . That ’ s why we have to keep monitoring our companies .”
He posits that M & A activity is the main reason companies fall off the rail . “ When companies start doing M & A , it can indicate that its core business is slowing and they are looking for growth . The risk is that the deal could be outside of their core competency and that integration risks are high .”
When one of the fund ’ s companies makes an acquisition , Christensen says , the team makes sure it will be accretive and can be integrated without disrupting the core business . “ Many companies can pull it off , but a lot of them can ’ t .”
In the final analysis , he credits the Virtus KAR Mid-Cap Core Fund ’ s long-term success to its disciplined investment approach . “ We know that over the long term high quality will win out over low quality ,” Christensen says . “ We won ’ t pivot to buy lowquality businesses when low quality is in favor just to chase performance . The discipline we stick with accounts for our consistent performance .”
44 | FINANCIAL ADVISOR MAGAZINE | NOVEMBER 2023 WWW . FA-MAG . COM