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1ST QUARTER 2015
ALL CAP VALUE
STRATEGY OVERVIEW
FIRM OVERVIEW
STRATEGY OBJECTIVE
Lombardia Capital Partners, LLC (LCP) is an
employee owned minority boutique asset
manager specializing in U.S. and non-U.S. value
equities. We offer investment management
services to institutional, public, corporate,
multi-employer, and not-for-profit clients.
The All Cap Value (ACV) strategy is an actively managed, concentrated portfolio
that holds companies with market capitalizations ranging from small to large. The
strategy seeks to outperform the Russell 3000® Value Index by holding 15-20 high
conviction names with favorable valuations and attractive fundamentals.
We manage approximately $3.5 billion from
our offices in Pasadena, CA and Chicago, IL.
Our suite of domestic and global equity value
strategies
provide
diverse
investment
opportunities for prospective clients who seek
long-term risk adjusted outperformance.
The strategy works towards achieving its objective by looking for potential
investments that have the following four key attributes:




Trade below our estimation of intrinsic value
Favorable risk/reward
Generally strong balance sheets and positive free cash flow
Catalysts exist that will unlock this value
RESEARCH PROCESS
ALL CAP VALUE STRATEGY
 Assets under management: $157 million

Benchmark: Russell 3000® Value Index

15-20 portfolio holdings

5% maximum cash weighting
INVESTMENT TEAM
Al Marley, CFA
Partner, Chief Executive Officer,
Senior Portfolio Manager
42 years of experience
Fernando Inzunza, CFA
Partner, Portfolio Manager
35 years of experience
Kelly R. Ko, CFA
Partner, Portfolio Manager
29 years of experience
The All Cap Value portfolio is composed of the 15-20 highest conviction stocks our
portfolio managers can find, typically drawing heavily on the current holdings of
LCP’s other domestic strategies, as well as other stocks in the Russell 3000® Value
Index. Because investment ideas are drawn from different strategies, the research
process for any given security depends on whether the stock is a large cap or small
cap stock.
For Small Cap stocks:
LCP screens for success factors such as good historical and forecasted growth rates,
low P/E multiples, low financial leverage, and positive free cash flow. LCP also seeks
companies with strong management, good earnings prospects, strong balance
sheets, and good earnings consistency. Research is assigned across sixty sub-sectors
within the investment universe. Each member of the team is responsible for
approximately one-fifth of the sub-sectors. The investment professional assigned to
a particular sub-sector must utilize their own inputs in order to drive valuations three
years forward. Once valuations are entered into the model, fundamental research
drives the investment decision. Research consists of analyzing financial statements,
company conference calls, industry conferences, and company visits.
For Large Cap stocks:
The universe is filtered using our valuation model, which reflects earnings four years
in the future based on fundamental modeling performed by the analyst or portfolio
manager who researched the company. This earnings stream is discounted to the
present using a rate which takes into account the strength of the company’s balance
sheet, earnings variability, business risks, and other factors. We then attribute a
normalized relative multiple taking into account the company’s historical range, its
industry peer group, and where it could potentially trade in the future based on
changes in its business economics to generate a price target. As we filter the
universe, we look at how the discounts to intrinsic value vary among and within
sectors. The team conducts independent, rigorous fundamental research. The team’s
research is conducted using publicly available information contained in financial
statements, annual reports, press releases, management discussions, peer company
analysis as well as other resources to make reasonable assumptions in building
financial models and assessments of company fundamentals. For each company that
filters through the screens, the team performs rigorous individual analysis. The team
reviews and analyzes long-term trends in price-to-sales ratios, sales growth rates,
profitability (operating margins, net profit margins, return on equity, and return on
capital), earnings per share, dividends per share, and valuation. The team studies
the consistency, stability, and sustainability of these trends given the competitive
position of the company and the industry. In-house research resources include the
firm’s propriety earnings discount model which utilizes the analyst’s estimates of
future earnings and growth rates to evaluate intrinsic value.
LOMBARDIA CAPITAL PARTNERS, LLC
Headquarters: 55 South Lake Avenue, Suite 750 • Pasadena, CA 91101 • P: (626) 568 2792 • F: (626) 568 2771
30 North LaSalle Street, Suite 4030 • Chicago, IL 60602 • P: (312) 269 1060 • F: (312) 269 1061
[email protected] • www.lombardiacapital.com
1ST QUARTER 2015
ALL CAP VALUE
STRATEGY OVERVIEW
PORTFOLIO ATTRIBUTION
ANNUALIZED COMPOSITE RETURNS*
For the quarter ending March 31, 2015, the All Cap Value
Composite outperformed the Russell 3000® Value Index. On a
gross of fees basis, the All Cap Value Composite returned
0.11% versus the Russell 3000® Value Index return of -0.51%.
During the quarter, the portfolio’s stock selection was
negative, detracting approximately 17 bps. Stock selection
was positive/neutral in seven of ten sectors, with Information
Technology (+135 bps), Health Care (+48 bps) and Consumer
Discretionary (+37 bps) performing the best. This was offset
by negative stock selection in three of ten sectors, with
Financials (-128 bps), Industrials (-63 bps), and Energy (-54
bps) performing the worst.
Gross of Fees
Net of Fees
R3000 V
1 YR
3 YR
Since
Inception
20%
15%
10%
5%
0%
The All Cap portfolio is a concentrated strategy composed of
the 15-20 best ideas drawn from the firm’s domestic
strategies. It is diversified in likeness to the Russell 3000®
Value Index, with flexibility to overweight and underweight
sectors based on which securities the portfolio managers
believe to have the most favorable future prospects. For the
quarter ending March 31, 2015, the largest sector overweights
were Consumer Discretionary (+11.46%), Industrials (+6.96%),
and Information Technology (+4.32%). The largest sector
underweights were Financials (-12.59%), Consumer Staples (6.97%), and Materials (-3.18%). Compared to the benchmark,
the Estimated Price to Earnings ratio (2015) and the Price to
Book ratio are 11.5x versus 16.5x and 1.6x versus 1.8x,
respectively. Additionally, the portfolio ROE is 12.5% versus
11.8% for the benchmark.
When taken together, these
statistics support our stated goal of constructing a high
quality portfolio with a favorable valuation.
SECTOR WEIGHTINGS (%)
-5%
QTR
2 YR
5 YR
Gross of Fees
Net of Fees
R3000 V
QTR
0.11%
0.00%
-0.51%
1 YR
7.72%
7.24%
8.94%
2 YR
16.83%
16.31%
15.12%
3 YR
17.03%
16.51%
16.30%
5 YR
14.29%
13.78%
13.66%
Since Inception*
16.73%
16.21%
14.76%
PORTFOLIO CHARACTERISTICS
Energy
Materials
Industrials
Consumer Discretionary
Consumer Staples
Health Care
Financials
All Cap Value†
R3000 V†
Price to Earnings (Prev. 4 Qtrs)
12.7x
15.7x
Est. Price to Earnings (2015)
11.5x
16.5x
Price to Book
1.6x
1.8x
Dividend Yield
2.2%
2.4%
Median Market Cap (millions)
$37,467
$1,387††
Wtd Market Cap (millions)
$114,833
$99,150††
Price to Cash Flow
8.3x
9.8x
LT Debt to Total Capitalization
37%
36%
12.5%
11.8%
ROE
Information Technology
†Data source: Baseline
††Data source: Russell Investments
Telecomm
Utilities
0%
10%
LCP ACV
20%
30%
R3000 V
*Inception date is 12/08/09.
Data as of March 31, 2015.
Supplemental information supplements the LCP Composite Performance Presentation at end of document.
See accompanying GIPS® performance presentation for performance disclosures.
Past performance is not indicative of future results. Data is subject to change on a daily basis.
GICS Sectors; Index source: Russell Investments
2
1ST QUARTER 2015
ALL CAP VALUE
COMMENTARY
PORTFOLIO COMMENTARY*
In the sixth year of the current bull market, domestic equity
markets started the year up slightly, with small cap and growth
segments outperforming large cap and value segments.
The
portfolio, heavily weighted toward large cap value, faced
headwinds to absolute performance, returning 0.11% gross of fees.
The portfolio outperformed the Russell 3000® Value, which
returned -0.51%.
Leading the way in performance was a technology company that
reported strong quarterly earnings due to the launch of a new
product cycle. Once feared to be reaching a peak in earnings, the
company made an adjustment to an existing product line that
subsequently drove nearly a 50% year over year increase in sales
volume and earnings per share.
In addition, it introduced other
innovative products that have collectively restored investors faith
in further earnings growth. The company continues to exhibit
positive business momentum and to trade at a reasonable valuation
based on cash generation and cash on hand.
The second major contributor was a managed care operator that
benefitted from positive industry dynamics. When the position was
initiated in 2013, investors were worried that government
involvement in the healthcare industry would lead to profit erosion.
Since then, earnings have grown at a low double digit rate that is
expected to persist through 2017, due in part to growing
enrollment volume and reimbursement rates that are less
prohibitive than originally expected. On top of earnings growth,
the price-to-book multiple investors apply to the stock has
expanded nearly 50%. As a result, the industry has provided strong
investment returns.
A large, diversified bank was the second major detractor in the
quarter.
While the entire industry underperformed due to
persistent low rates, this bank performed poorly because it will
have to raise capital reserves. This will result in less capital being
returned to shareholders in the near term than originally expected.
Because we believe the majority of value to be unlocked will come
from cost reductions, we remain comfortable with the valuation
and business momentum once the company gets past this
temporary setback.
The third largest detractor in the quarter was an aerospace supplier
that has faced cost overruns and write-downs since 2013. It is not
uncommon for suppliers to face cost overruns from time to time. In
this case, the company added to its problems by acquiring
unprofitable contracts from competitors under the assumption it
could make the projects profitable. It now appears the company
has taken on more than it can handle. These cost overruns, along
with a few other operational issues, are fixable, but will likely
depress earnings power for the foreseeable future.
The portfolio continues to carry no exposure to the Consumer
Staples, Materials, and Telecom sectors. These areas either carry
expensive valuations or few timely opportunities. The portfolio is
also underweight Energy, as there are almost no companies that
are experiencing positive business momentum.
However,
valuations have become more attractive in the past few months,
and we continue to monitor the data for signs of a positive turn.
An oilfield services company was the third largest contributor to
performance in the first quarter. The company, which we recently
purchased, was one of the worst performers in the fourth quarter
after it announced a major acquisition. Though it paid a significant
premium for the target, we believe at current valuations, the
combined entity is attractively priced due to improved economies
of scale. Sentiment towards the acquisition has improved over the
quarter, driving relative performance.
On the other side of the ledger, the largest detractor of
performance was an oilfield services company.
Originally
perceived as having more earnings stability than the industry
because of dominant market share and a strong backlog, the
company outperformed in the fourth quarter as oil prices fell.
However, in the first quarter, some backlog was cancelled, and
margins reached new lows. This came as a surprise to the market,
and the stock underperformed. Because of its exposure to the
offshore drilling market, we believe the stock will be less timely
than other oilfield service stocks, and we chose to exit the position,
despite what we perceive to be an attractive valuation.
*Portfolio commentary is based on the All Cap Value Strategy composite. The holdings identified do not represent all of the securities purchased, sold, or recommended for advisory
clients. Past performance does not guarantee future results. Any securities mentioned are provided for informational purposes only and should not be deemed as a recommendation to
buy or sell. Portfolio holdings are subject to change at any time.
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1ST QUARTER 2015
ALL CAP VALUE
GIPS® PERFORMANCE PRESENTATION
Year
End
2014
Total Firm
Assets
(USD)
(millions)
$3,718
Composite
Assets
(USD)
(millions)
$59.2
Number of
Accounts
End of
Period
3
Russell
®
3000 Value
Index
Return
12.70%
2013
$3,739
$37.2
2
2012
$2,920
$29.4
2011
$2,700
2010
$2,725
Composite Annual
Performance Return
Internal
Composite
Dispersion
1
N.A.
Composite
EX-Post
Standard
Deviation
12.03%
Benchmark
EX-Post
Standard
Deviation
9.36%
Gross
4.15%
Net
3.68%
32.69%
44.96%
44.33%
N.A.
1
15.31%
12.90%
2
17.55%
17.63%
17.11%
N.A.1
18.13%
15.81%
$12.5
1
-0.10%
-2.09%
-2.53%
N.A.
$12.8
1
16.23%
26.62%
26.07%
N.A.
1
N.A.
2
N.A.
2
1
N.A.
2
N.A.
2
1
N.A. – Information is not statistically meaningful due to an insufficient number of portfolios in the composite for the entire year
N.A.2 –Insufficient period of time
Lombardia Capital Partners, LLC, previously known as Valenzuela Capital Partners, LLC, is an independent registered investment
adviser. It changed its name to Lombardia Capital Partners, LLC on July 17, 2006. This was solely a name change and the firm
did not change its investment process or personnel at that time.
Lombardia Capital Partners (LCP), claims compliance with the Global Investment Performance Standards (GIPS®) and has
prepared and presented this report in compliance with the GIPS standards. LCP has been independently verified for the periods
of January 1, 2003 through December 31, 2013 by Ashland Partners and Company LLP. Verification assesses whether (1) the firm
has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm’s
policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. The All Cap
Value Composite has been examined for the periods of January 1, 2010 through December 31, 2013. The verification and
performance examination reports are available upon request.
All Cap Value Composite includes all institutional equity portfolios that invest in U.S. equities representing the entire spectrum of
market cap ranges with the goal of providing long-term capital growth and steady income from a well-diversified strategy. The
strategy comprises of funds investing in companies representative of the Russell 3000® Value Index. The strategy allows for
equity exposure ranging between 80–95%. The strategy contains all discretionary, fee paying, equity only accounts that invest
primarily in value oriented, all cap domestic companies. Results are based on fully discretionary accounts under management,
including those accounts no longer with the firm. December 9, 2009 through December 31, 2012, the composite policy required
the temporary removal of any portfolio incurring a client-initiated significant single cash inflow or outflow of at least 10% of
portfolio assets. The temporary removal of such an account occurs at the beginning of the month in which the significant cash
flow occurs and the account re-enters the composite at the beginning of the month after the cash flow. Additional information
regarding the treatment of significant cash flows is available upon request. Past performance is not indicative of future results.
Currency used to express performance is U.S. Dollar. Returns include reinvestment of all income. Returns gross of management
fees do not reflect deduction of investment advisory fees. Actual returns will be reduced by investment advisory fees and other
expenses that may be incurred in the management of the account. Actual investment advisory fees incurred by clients may vary.
LCP’s advisory fees are described in Form ADV Part 2, and All Cap Value investment management fees are generally: 0.80% on
the first $10 million, 0.70% on the next $25 million, 0.60% on the next $50 million, and 0.55% above $85 million.
Fees are collected quarterly, which produces a compounding effect on the total rate of return net of management fees. For
example, the effect of investment management fees on the total value of a client’s portfolio assuming (a) $1,000,000
investment, (b) portfolio return of 8% a year, and (c) 1% annual investment advisory fee would be $10,416 in the first year, and
cumulative effects of $59,816 over five years and $143,430 over ten years. The net-of-fee performance was calculated by
deducting on a monthly basis the highest fee paid by an account in the composite of 0.45%.
Policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request. The
All Cap Value Composite was created December 9, 2009. The firm’s composite list and descriptions are available upon request.
BENCHMARK: The benchmark is the Russell 3000® Value Index. Performance returns of the indices are used as a comparable
rate of return based on the similarity of investment holdings with those of the Composite. The rates of return for the indices do
not include any transaction costs, management fees, or other costs. Indexes are unmanaged and cannot be invested in directly.
Russell Investments is the source and owner of the Russell Index data contained or reflected in this material and all trademarks
and copyrights related thereto. The presentation may contain confidential information and unauthorized use, disclosure,
copying, dissemination or redistribution is strictly prohibited. This is a presentation of LCP. Russell Investments is not
responsible for the formatting or configuration of this material or for any inaccuracy in LCP’s presentation thereof.
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