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Jul 20 2011

2nd Quarter 2011 Commentary - ASTON/Cornerstone Large Cap Value Fund

2nd Quarter 2011 Commentary

The Fund slightly outperformed the Russell 1000 Value Index in the second quarter of 2011. 


The Fund's overweight position in United Technologies aided relative returns. The company reported strong first quarter results led by high single digit organic growth, which bested expectations. Additionally, the company estimates that its 2011 sales will be at the high end of projections.  The portfolio's position in Accenture contributed to relative returns.  The company’s stock rose after Standard & Poor's announced that Accenture will be added to the S&P 500 Index.  Holdings of IBM aided relative performance as the company reported first quarter earnings that beat consensus estimates. Market share gains across most businesses, particularly the hardware business which benefited from new production introductions and margin expansion drove revenue increases.

An underweight position in Energy, the quarter's worst performing sector contributed positively to relative performance as energy stocks traded lower amid falling crude prices. Stock selection in the Energy sector detracted from relative performance. 

Additionally, McDonald's shares contributed to relative performance during the reporting period. New product innovation, brand reimaging, and continued sales momentum drove earnings.  Holdings of MasterCard contributed to relative returns. Shares of MasterCard rose as the company reported better-than-expected earnings driven by momentum in cross boarder demand, increased emerging market opportunities, and strong volume trends.  The portfolio's holdings of Abbott Laboratories contributed to relative performance. The stock outperformed after reporting stronger-than-expected quarterly sales.  Holdings of Nestlé, contributed to relative performance as the company reported strong earnings for the quarter. Organic sales growth in emerging markets and price increases were key drivers to outperformance. Relative performance of the Fund was benefited by not owning the poor-performing insurance and investment firm Berkshire Hathaway. Shares depreciated as the company reported quarterly net income that was down compared to a year ago. The large decrease in profits was driven by reinsurance losses due to the large earthquake that took place in Japan in March. Shares of Philip Morris International benefited the Fund due to the portfolio's overweight in the stock which outperformed during the quarter.  The portfolio's holdings of Becton Dickinson contributed to relative performance.  Shares appreciated as the company reported better-than-expected sales for the quarter driven primarily by their medical and diagnostic segments.


For the quarter, relative performance of the Fund was hurt by not owning shares of Merck, Biogen Idec, UnitedHealth Group and  Bristol-Myers Squibb.  An underweight position in the Utilities and Communications sector, which outperformed the broad market during the quarter, detracted from relative performance. The Fund’s underweight position in the sector has been driven by bottom-up stock selection decisions rather than macroeconomic forecasts. Stock selection in the Utilities & Communications sector also detracted from relative performance.

Additionally, holdings of Goldman Sachs hampered relative performance. Shares of the company

underperformed the broad market due to uncertainties surrounding the on-going debate about the implementation of the financial services reform legislation. The portfolio's position in JPMorgan Chase hurt relative performance during the quarter. Concern over uncertain regulatory rules and capital requirements, higher litigation and foreclosure costs, sluggish macro data and general concern over the revenue outlook at banks held back relative returns.  The Fund’s relative performance was impeded by not owning shares of Kraft Foods.  The portfolio's holdings of Hess dampened relative results. Shares of Hess traded lower as energy commodity prices declined during the reporting period.


The biggest change in the Fund over the last quarter was our increased exposure to the Leisure sector and our decreased exposure to the Financial Services and Health Care sectors. In the Leisure sector, we increased the exposure to toy companies by adding a new position and opportunistically adding to a current holding. Also, we added to existing positions in a broadcaster and a fast food restaurant.

While we added selectively to several Financial Services holdings, the absolute and relative exposure to the sector declined this quarter. The biggest reason for the decline in the absolute exposure to the sector can be directly tied to the underperformance of a number of the large banks owned within the Fund. We have steadily been increasing the exposure to the banking sector over the last two-and-a-half years as valuations have reached historically inexpensive levels. Ongoing discussions regarding the future regulatory framework – in particular the calculation of Risk Weighed Assets and the level of additional capital the Strategically Important Financial Institutions will be required to hold – weighed heavily on the largest banks owned in our portfolio. Additionally, weaker economic data in the US was also cause for concern as the future growth outlook for these companies. In our opinion, valuations around or below book value, more than account for these fundamental headwinds and we continue to be patient, as is our typical style, taking a longer-term view than the market. We also reduced the portfolio's exposure to insurance companies, significantly trimming a couple of positions. Within Health Care, we reduced our exposure to a current medical equipment holding and a health maintenance organization position.

Each year at this time, Russell Investments rebalances its style indices. This year, there were a number of changes that affected our relative positions within several sectors, albeit not nearly to the same extent as years past.  The biggest change in the Russell 1000 Value index was its increased exposure to the Information Technology sector, significantly decreasing our overweight exposure to the sector. The Index's exposure to Consumer Staples companies decreased significantly, magnifying the portfolio's overweight position to the sector. The index weight in Health Care also decreased, moving the portfolio's relative position from an overweight position to an underweight position. And finally, the Financial Services exposure continues to march higher, magnifying the portfolio's underweight position to the sector.

MFS Investment Management

Please note:  Effective July 15, 2011 Cornerstone Investment Partners was appointed as the new Subadviser for the ASTON Value Fund.

As of June 30, 2011, United Technologies comprised 2.62% on the portfolio’s assets, Accenture – 2.78%,  IBM  – 2.52%, McDonald’s – 1.75%, MasterCard -0.97% , Abbott Labs  - 1.97% ,  Nestlé – 1.39%, Philip Morris International  - 3.85% , Becton Dickinson – 1.25%, , Goldman Sachs – 3.08%, JPMorgan Chase – 3.83%, Hess – 0.23%.

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

Before investing, carefully consider the fund’s investment objectives, risks, charges and expenses. Contact 800 992-8151 for a prospectus containing this and other information. Read it carefully. Aston Funds are distributed by BNY Mellon Distributors Inc.


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

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