Top Aberdeen Manager Starts at the Top

“We won’t look at a company until we talk to management,” says Ralph Bassett when summing up the investment strategy he and his co-managers use at Aberdeen US. Small Cap Equity (GSXAX), an $817 million fund that Morningstar ranks in the top 1% of small-cap growth funds. Bassett’s philosophy, outlined in a recent Barron’s article, is built around the belief that owning the right companies is more important than diversification. With an 8.3% return last year (compared to a decline of 4.4% in the Russell 2000) and an 11.2% gain so far this year (versus 4.7% for the index), it seems that Bassett is on the right track.

His team works to invest “in good stocks and not overpay,” which means evaluating free cash-flow yield to measure the ability to generate cash (exclusive of any accounting-based tactics to boost earnings, a focus in both our Fisher and Neff guru methodologies). “Some of the most boring companies,” Bassett says, “have been our best performers.”

This “organic” style of stock-picking includes comparing management’s historical stance to see how a company’s current operations and performance stack up. He says, “We can go back seven, eight years and look at the original thesis and see what management said.” This is particularly important in smaller companies where management can have an even bigger impact on success. Bassett comments, “We are constantly running across management teams that are overly optimistic, either because they are hiding something or have no clue.”