AMG Funds


Effective October 1, 2016, the Aston Funds family has been integrated into the AMG Funds family of mutual funds. We are excited about the opportunity to serve you with more than 100 investment options spanning the asset class spectrum.

To learn more about the Aston Funds integration into AMG Funds, please visit Individual Investors can phone us at 800.548.4539. Investment professionals please call us at 800.368.4197.

Mutual Funds
Prospectuses & Reports
Shareholder Services


Skip to navigation

See More Stories

Oct 15 2013

3rd Quarter 2013 Commentary - ASTON/Herndon Large Cap Value

3rd Quarter 2013 

Investing is frequently referred to as being more like a marathon and not a sprint. As a former distance runner, I can identify with this analogy. While in high school, I ran cross country and the two mile (now 3200 meter). In running distances, you have to recognize that how the race starts does not necessarily reflect how it is going to end. You have to know yourself, how you run, and not be overly focused on the competition … except at the end. As investment managers, we have gone through a particularly trying period the last year or so. Our competition, the Fund’s Russell 1000 Value Index benchmark, ran out to a quick and large lead in the early stages of the race. Lately, during the recently concluded third quarter, we picked up some ground.

It is quite interesting in looking at the most recent period in this context. Due to this one segment of the race, some investors might question if we were fit for the continuance of the journey. But, like those who would casually observe a cross country meet, if you do not look at the whole race, you only see in parts and focus on the part you are looking at. The competitive trail may take you through hills, plains, valleys, and woods. Astute runners know how to keep their pace with an eye on an intended end. Our collective eye has been on an intended end, adding long-term value beyond the benchmark. We have not deterred from the quest, changed the goal, or deviated from the path. We continue to seek long-term outperformance.

During this same period, other investors took the opportunity to buy additional shares in the Fund, along with the addition of new shareholders. These shareholders may have also questioned our lagging first half of the year, but chose to look at the whole race, our full body of work, and drew the conclusion that we have not lost our way. We would agree. The third quarter of 2013 was merely another step in the journey. 

Positive Health
The Fund outperformed the benchmark during the quarter, as holdings in eight out of 10 sectors of the portfolio outperformed their respective sector and/or the overall benchmark. Performance was broad across the Russell 1000 Value, with five sectors—Materials, Industrials, Consumer Discretionary, Technology, and Healthcare— outperforming the index overall. The Fund was overweight each of these sectors with the exception of Healthcare, as both stock selection and sector allocation were positive.

Stock selection overwhelmingly drove performance, especially within Healthcare and Financials, aided by the lack of any exposure to the negatively performing Utilities area. Four out of six holdings in Healthcare outperformed, with strong performance coming from Endo Health Solutions and Mylan. Similarly, financial firms Waddell & Reed and McGraw Hill posted double-digit gains.

Joining Endo among the top-three individual performers for the quarter were Apple and Lockheed Martin. Endo performed well owing to a diversification strategy deployed to counteract the loss of patent protection on Lidoderm, one of its key historical products. Apple generated some excitement surrounding new product introductions, helping to allay fears that the company has lost its way. Lockheed Martin, similar to other defense contractors, continued to gain business globally and defy negative sentiment surrounding government sequestration. Each of these stocks was still a portfolio holding as of the end of the quarter.

Consumer Staples, Energy, and Consumer Discretionary offered the lowest contribution on a sector level. Consumer Staples was the third worst performing sector in the benchmark, behind Utilities and Telecom, as three out of five portfolio holdings underperformed. Campbell Soup and Altria yielded negative returns as traditional defensive stocks appeared to have lost some favor within the market of late. Energy holdings underwhelmed as Exxon Mobil lost ground and refiners like Marathon Petroleum continued to lag. Sentiment towards refiners has turned negative as some investors have become concerned about fundamentals moving forward in terms of the crack spread (differential between Brent and WTI crude) as well as demand. Valuations appear to discount a great deal of this news but the stocks have continued to underperform. The rise in TJX Companies couldn’t overcome lackluster performances from the other four holdings in Consumer Discretionary. 

Portfolio Positioning
Among the stocks eliminated from the portfolio due to sector adjustments and/or valuation/fundamental issues were Ross Stores, Nordstrom, Hershey, and St. Jude Medical. These changes were primarily driven by the dynamic interrelationships of the sectors as we position the portfolio to exploit value creating opportunities. As we like to share regarding our investment philosophy, “We have a core process but no core holdings.” Notable new purchases included Western Union, Continental Resources, and Mastercard. Each stock was purchased after first being identified as a value creating opportunity followed by fundamental analysis to vet out its potential as a portfolio holding.

The result of this and related activity during the quarter was increased exposure to Technology, Industrials, Energy, and Financials, while stakes in Consumer Discretionary, Healthcare, and Materials decreased. All other sectors remained essentially the same outside of market appreciation or depreciation. 

The sentiment surrounding the US economy and the global economy is that we are moving from the phase of “less worse” to actual positive data points suggesting that things are getting better at an accelerated pace, though the slope may not be very steep. Jobs, housing, and other economic statistics indicate that we have moved beyond a stage where a fear of recession is warranted. The ugly political theater playing out in Washington gives investors something to worry about for the moment. That moment is where I want to focus this outlook.

Investors who would consider themselves intelligent, rational-thinking beings often make too much out of a good thing as well as too much out of a bad thing. Extrapolation of the current situation is quite dangerous when you weigh it against the preponderance of evidence in history. Calamities and difficulties are a part of life and make interesting fluctuations in the investment narrative. Making too much of a current moment, however, can cause you to make disastrous decisions for the long-term even though each decision may appear to be comforting in the moment.

For example, fried chicken, mashed potatoes, baked squash casserole with cheese, sliced tomatoes, and a tall glass of sweet tea is a meal that I could eat at least once a day. In the moment (and when my wife wants to tip my favor overwhelmingly in her direction), it is desirable (and it is almost certain to bring her victory). Each person probably has their own description of comfort food. This is just one of mine. Add a slice of Black Forest cake to the meal and it is probably complete.

But, I rarely get this meal. Why? Because while it is desirable, I know that too much of a good thing can become a bad thing. Instead, I have to think about my long-term health and make decisions accordingly.

Investing can be likened to a financial diet where too much of a perceived good thing can turn out to be bad. Too much fear and you may not invest. Too much greed and you will throw caution to the wind. Somewhere in between is a balance that will likely bring you satisfactory returns over time.

In one breath, some market pundits acknowledge that the US economy is getting better but then retreat to the negative rhetoric that the US economy is still weak and fragile. Somewhere in between is likely the truth, but the responsibility for seeking it ultimately resides with the investor. Keeping in mind that the commentators are actually part of a scheme to sell advertising time slots to enrich their media owners, the bipolar nature of the current commentary seems to sometimes overwhelm the power of logic. With investing, the logical long-term winning game plan is to buy value and avoid what is not.

The third quarter began what we think is a reconfiguration of the investment mindset. Investors seem to be moving away from buying near and dear in terms of domestic-oriented companies paying out high dividend yields. Replacing the void created by this change in direction are companies that have a growth trajectory associated with their businesses that suggest a better outcome is on the horizon. Thus, areas such as Utilities, Telecom, Health Care, and Consumer Staples have lost favor. Some of the more cyclical and economically sensitive parts of the investment world have started to get interesting.

If the US economy helped to lead the global slowdown starting in 2008, the US economy’s stabilization may also be a precursor to the global upturn. If so, we think the Fund’s sector positioning would appear to be opportunistic with overweight stakes in sectors such as Energy, Materials, Industrials, Technology, and Consumer Discretionary as well as multinational Consumer Staples.

We are not simply sector rotators. We pride ourselves in our stock picking, which is what drives our sector positioning, and believe that the holdings in the portfolio all merit significantly higher valuations,. Coupled with sectors that may be timely, we think that the fourth quarter and beyond should yield attractive results. 

Randell A. Cain, CFA
Principal and Portfolio Manager
Herndon Capital Management

October 5, 2013

As of September 30, 2013, Endo Health Solutions comprised 2.72% of the portfolio's assets, Mylan – 2.24%, Waddell & Reed – 2.44%, McGraw Hill – 1.98%, Apple – 2.71%, Lockheed Martin – 2.57%, Campbell Soup – 1.82%, Altria – 2.30%, Exxon Mobil – 2.07%, Marathon Petroleum – 2.33%, TJX Companies – 3.14%, Western Union – 2.06%, Continental Resources – 2.08%, and Mastercard – 1.06%.

Note: Value investing involves buying the stocks of companies that are currently out of favor and may decline further.

Before investing, consider the Fund’s investment objectives, risks, charges, and expenses. Contact 800 992-8151 for a prospectus or summary prospectus containing this and other information. Please, read it carefully. Aston Funds are distributed by Foreside Funds Distributors LLC.


Aston History (212 KB, PDF)
Capabilities Brochure (2 MB, PDF)
Aston Style Box (46 KB, PDF)
Aston Subadvisers (490 KB, PDF)

Designed and created by DDM Marketing & Communications.