Investing in high-quality mid-cap companies with owner-operator management teams and sustainable competitive advantages.
A wide latitude to depart from index weights results in higher active share and more concentrated top holdings than peers.
Aligned incentives: Owner-operators tend to be passionate and cost conscious. We believe they have longer-term outlooks and are better capital allocators.
An experienced team with a history of generating excess risk-adjusted returns over market cycles.
We believe owner-operator traits—things like love for the business, a focus on long-term outcomes, and rational thinking about capital allocation—naturally align with long-term shareholder value.
To help us understand a CEO’s personal incentives, we use a simple calculation we call the aligned ratio, which measures the owner’s stake in the business relative to their annual pay. The aim is straightforward. Do they think about the business as a part-owner or highly-paid employee? Many CEOs have single digit aligned ratios. Owner-operators often have much larger ratios, with ownership that is commonly over 100 or even, 1,000 times their compensation.
Source: Bain & Company. Based on an analysis of S&P 500 firms in 2014.
We believe owner-operators are better CEOs. But does this matter for investors? Yes—owner-operator companies are four to five times more likely to be top quartile performers. In fact, owner operators performed 3.1 times better than other companies over the past 15 years.
Learn more about our large cap owner-operator strategy, Blue Chip Equity.
Manager
Principal Aligned
Inception
1 April 2000
Index
Russell Midcap Index
Targeted number of holdings
70-100
Expected turnover
15-30%
Investment vehicles
CIT, IMA, SMA, U.S. Mutual Fund
Long-term, bottom-up fundamental investors who specialize in the management of U.S. large-cap and mid-cap portfolios. We specifically target owner-operator led companies with aligned incentives and are constantly focused on valuation and risk reduction.
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Past performance does not guarantee future results.
Equity markets are subject to many factors, including economic conditions, government regulations, market sentiment, local and international political events, and environmental and technological issues that may impact return and volatility. Mid-cap stocks may have additional risks including greater price volatility.
Investment guidelines are subject to change.
Not all investment options are available in all jurisdictions. Certain vehicles have not been registered with the United States Securities and Exchange Commission under the United States Securities Act of 1933 and may not be directly or indirectly offered or sold in the United States or to any United States person.
Principal Aligned is an investment team within Principal Global Investors.
Russell Midcap Index includes firms 201 through 1000, based on market capitalization, from the Russell 3000® Index.