These attributes should enable the company to post above-average sales and profit growth and generate high returns.
Kemp began his career at UBS Global Asset Management in 1992. He is also head of large cap growth equities and previously worked as co-head of fixed income, chief investment strategist and global head of high yield research before joining the US growth equity team in 2001.
The manager is supported by an experienced team of analysts and their research responsibilities are assigned by sectors.
The investment process begins with a screen that targets companies in the Russell 1000 Growth Index with a market cap that is greater than $2.5bn, although the universe is not limited to companies in the index.
The team also applies a model to ensure the companies have the desired growth characteristics. However, fundamental research is the cornerstone of the process and the team looks to identify those companies with a competitive advantage and sustainable business models that are attractively valued.
They assess a company’s competitive advantage by establishing whether it operates in an industry that allows it to maintain and increase its market share, pricing power and return on invested capital.
The team also makes an assessment of the company executives and their track record of capital allocation.
Valuation is also an important part of the process and the team looks to establish whether the stock price already reflects the company’s growth prospects and the quality of earnings, which they ascertain by modeling cash flows under different scenarios.
The team classifies growth stocks into three types: classic growth, elite growth and cyclical growth. Classic growth stocks are relatively mature and well-researched companies that are usually fairly priced but market fluctuations can present opportunities to invest in strong businesses at attractive valuations.
Elite growth companies are those which are in a fast growth phase but can be incorrectly priced by the market and cyclical growth stocks are those that they believe the value creation ability of the company exceeds market prices or where the magnitude of underperformance is limited even during a cyclical downturn.
There are no constraints among the three buckets of growth but majority of the portfolio will be divided between classic and elite growth companies.
The portfolio will usually hold 35 to 55 stocks. In terms of controlling risk, each sector exposure should be within +/- 15 percentage points of weighting in the Russell 1000 Growth index and individual holdings should not account for more than 8 per cent of the portfolio.
Performance of fund vs sector and benchmark since launch
Source: FE Analytics
Chetan Modi, investment research analyst at OBSR, commented: "The UBS US Growth fund benefits from an experienced investor in Lawrence Kemp who applies a process which is proven over the long-term."
"The growth equity strategy is robust and the manager has shown the ability to execute it well. Moreover the team’s classification of growth stocks and their approach to portfolio construction sets the fund apart from its peers and highlights the team’s pragmatism when encountering volatile markets."
"Their approach has led to strong results over time with volatility typically lower than the benchmark."