Manning & Napier, Inc.
Q3 2013 Earnings Call Transcript

Published: 31 Oct 2013

[Operator:]

Good morning. My name is Laurie, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Manning & Napier third quarter 2013 earnings teleconference. Our hosts for today's call are Patrick Cunningham, Chief Executive Officer; James Mikolaichik, Chief Financial Officer; and [ph] Scott Williams, Director of Financial Reporting. Today's call is being recorded and will be available for replay beginning at 11

[Unidentified Company Representative:]

Thank you, Laurie. And thank you, everyone, for joining us today to discuss Manning & Napier's third quarter 2013 results. Before we begin, I'd like to remind everyone that certain statements made during this call, which are not based on historical facts, including any statements relating to financial guidance, maybe deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995; because these forward-looking statements involve known and unknown risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements. Manning & Napier assumes no obligation or responsibility to update any forward-looking statements. With that, allow me to introduce our Chief Executive Officer, Patrick Cunningham. Patrick?

[Patrick Cunningham:]

Good morning, everyone, and thank you for joining us. As usual, I'll make some opening remarks before turning the call over to Jim Mikolaichik, our CFO. Jim will then take you through the key financial highlights, and when Jim's done, we'll open the call up to Q&A. I'll start with a quick review of the markets to provide context for our own results. As you know, the third quarter was once again strong for equities. Non-U.S. developed markets are in double-digit returns, while returns for U.S. stocks in emerging markets were about half of that. Year-to-date stocks are up between 15% and 20%, which represents a strong year for equity investors. Bonds on the other hand were flat in the quarter and remain negative year-to-date. Finally, the quarter was not without the share of macro concerns, including Syria, Fed watching and the government shutdown. Overall, stock suffered during August, but strong returns in July and September were enough to lead to a good quarter in the equity markets. It was also a good quarter for Manning in the peers investment strategies and our performance further strengthen our year-to-date results. Through September, our World Opportunities Fund is up 13.7%, our equity series is up more than 20% and our Pro-Blend Maximum Term Fund, the most aggressive of our lifestyle funds, is up more than 17%. On a relative basis, our World Opportunities Fund is outpacing its All-Country World Index benchmark by 3.7%. Our equity series, which has been the driver of recent outflows due to lagging relative returns is now outpacing the S&P 500 index year-to-date by 1.6% through the end of September. Our lifecycle offerings also continue to offer highly competitive returns. For example, all 11 of our Retirement Target Collective Trusts, which recently gained a five-year track record, currently rank in the top 10% of peers over the last five years. While our track records continue to show strength and we're seeing significant improvement in our U.S. equity strategies, flows continue to lag. Our flows for the third quarter were negative, though much improved from the second quarter of this year. Specifically, net outflows of approximately $400 million were comprised of nearly $500 million in net outflows in equity and fixed income strategies, offset by approximately $100 million in net inflows and our multi-asset class or our lifecycle strategies. Our U.S. equity strategies continues to be the primary driver of outflows, which we would expect to slow as our results continue to improve. We entered 2013 knowing it would be a year of transition for the firm and we worked through a difficult relative performance track record for our U.S. equity strategy. As you know, the third quarter of 2011 was challenging for this strategy and our results in that quarter impacted our longer-term historical track records. We made good progress in moving past that difficult time period, adding stronger absolute and relative returns, so that our year-to-date and one year numbers are now very appealing. With that in mind, let me provide some insight as to what we see is the headwinds and tailwinds for our business in the near-term. As for headwinds, beyond the potential for a lagging three-year return for our U.S. equity strategy through much of 2014, our World Opportunities Fund was recently downgraded by Morningstar from four to three stars. The change in rating was due to the roll-off of somewhat favorable relative return quarters in the five-year timeframe. And while we've recognized that star ratings can drive retail flows, our fund maintains a strong long-term track record, as illustrated by the fund's 10 year return of 9.9% versus an 8.8% return of the All-Country World Index for the same period. Over the 10-year period, the World Opportunities Fund ranks in the top 10% of its peer group. As for tailwinds, I mentioned earlier that our Retirement Target Collective Trusts achieved a five-year track record earlier this year and currently carry very strong peer rankings. In addition, our international series, which invest in non-U.S. equities and has a 20-plus year track record, currently has four star rating. Our emerging markets mutual fund will have a two-year track record this November. For the past one year through September, the fund is up more than 9%, while its benchmark is up less than 1%. At a time when many emerging market mutual funds are closing to new investors, we believe our reputation as a strong non-U.S. equity manager and our strong track record in the emerging markets fund will help us to gather assets in this space going forward. So overall while headwinds remain, there are several tailwinds that we believe can continue to help moderate outflows and work towards the return to net positive cash flows. So I have mentioned before, every fall, we host client seminars and we are currently in the middle of our 2013 program. By the end of the year, we will have hosted seminars in 14 cities, many of which I have already or will speak at. We are spending a good deal of time at these seminars, addressing client concerns about the low-yield environment and the potential for rising rates. This is giving us the opportunity to discuss the benefits of our flexible approach as well as some recent product launches intended to address a rising rate environment. In conclusion, our primary job is to remain focused on the three key foundations of our business that you hear me talk about each quarter. First, our strong team based research engine, which focus on discipline is driving our improved results; second, our solutions-oriented approach, which continues to be ideally suited to uncertain economic and market environments; and third, strong governance and operating structure that aligns the incentives of our employees, with those of our clients and shareholders. So with that as a brief overview, let me pass it over to Jim for an update on our financials. Jim?

[James Mikolaichik:]

Thank you, Patrick, and thank you everyone for joining us today. Hopefully, you've had an opportunity to review our earnings results, which were released after market closed yesterday. As Patrick mentioned, I'll take you through the financial highlights before opening the call to Q&A. As in prior quarters, some of my comments will include reference to non-GAAP financial measures. However, our full GAAP reconciliations can be found in our earnings release and related SEC filings. Looking at net client cash flows and assets under management, we ended the third quarter with $49.1 billion in assets under management, an increase of $2.8 billion or 6% on a sequentially basis, with the primary driver being investment returns of $3.2 billion. As compared to the third quarter last year, we had an 11% increase or $4.8 billion. And as of September 30, 2013, the composition of our client assets by investment vehicle was consistent with what we have reported previously, with 53% in separate accounts and 47% in mutual funds and collective investment trust. By portfolio, 47% of our total client assets were invested in blended asset portfolios or lifecycle products, 51% invested in a variety of equity strategies and the remaining 2% in fixed income portfolios, which was also in line with prior periods. Gross client inflows during the quarter stayed consistent with the second quarter at $1.9 billion, while gross client outflows improved to $2.3 billion, resulting in net client outflows of approximately $409 million. By investment vehicle, we experience net inflows of $143 million in our mutual fund and collective trust products, combined with $552 million of net outflows from our separate accounts. Within our separate accounts, we had approximately $485 million of gross client inflows, offset by $1 billion for gross client outflows. And our year-to-date retention rate is 93%, which is in line with the 92% retention rate reported last quarter. Transitioning to our third quarter financial results. We reported revenue of $94.6 million for the quarter, an increase of 11% from $85.4 million reported in the third quarter of 2012 and an increase of 2% from revenue of $93 million reported in the second quarter of 2013. The changes in revenue were generally consistent with changes in average assets under management, which increased by 11% from third quarter 2012, and generally unchanged since last quarter. Our revenue margins were consistent with revenue as a percentage of average assets under management of 78 basis points for the third quarter of 2013, compared with 79 basis points this time last year and 78 basis points for the previous quarter. Operating expenses were $51.9 million in the quarter, which represented a $5.4 million increase compared to the third quarter of 2012, and an increase of $3.1 million compared to the previous quarter. The increase in operating expense was a result of compensation related costs, including increase in the analyst bonus, stemming from strong absolute and relative returns during the quarter for many of our products and to a lesser extent from other variable incentives increasing with assets under management and revenue. Distribution, servicing and custody expenses have also increased in line with average assets under management, with the increase primarily due to sub-transfer agent and 12b-1 fee expenses. And other operating costs in the third quarter 2013 were in line with the previous quarter and down 6% from this time last year. And as a percentage of revenue, other operating costs for the quarter were 8%. As a result, we reported economic income for the quarter of $43.3 million, a 9% increase or $3.7 million from the third quarter of 2012, and a modest decrease from $44 million reported last quarter. And our economic income margin was 45.7% compared to 47.3% last quarter and 46.3% at this time last year. Economic net income was $26.7 million or $0.30 per adjusted share compared with $0.30 per adjusted share last quarter and $0.27 per adjusted share for the third quarter last year. With that, I will summarize our year-to-date results. Revenue for the first three quarters of the year were $277.9 million, which were approximately 10% ahead of last year with operating expenses of $151.1 million, an 11% increase over the last year. And as a result, economic income was $127.4 million, which is 9% ahead of last year. Revenue margins are in line with the prior year at 78 basis points, and our economic income margin year-to-date was 45.8% compared to 46.2% this time last year. And economic net income per adjusted share was $0.88 for the nine months ended September 30, compared to $0.80 per adjusted share last year. Before closing, I will cover a few other administrative items. Our management team continues to own approximately 18% of our business, and a large portion of that ownership is subject to individual performance vesting requirements through 2014. And as a result, we are continuing to report non-cash compensation expenses related to vesting. Those expenses are variable in nature and subjects to the underlying investing criteria and the market value of our public stock. Second, we are nearing an exchange period whereby both our founder and management team have the ability to exchange invested private units. The exchange timing will occur at or near at the end of the first calendar quarter of 2014. And as we approach the exchange period, we will continue to communicate information related to this process. As a result, the company filed an F3 shelf registration with the SEC earlier this week to address exchanges of shares from our management team and founder, while also providing capital raising flexibility, should other opportunities arrive. I would also remind everyone that both the vesting and exchange process are fully accounted for as part of our adjusted share account, and do not have a dilutive impact to our shareholders. And as of September 30, adjusted shares outstanding were 89,912,186, and there were 13,634,246 Class A common shares outstanding. Our balance sheet remains healthy, which continues to afford us the ability to invest in our business, while paying reasonable dividends to our owners. To that end, we continue to have a debt-free capital structure and maintain the cash balance of $126.3 million as of September 30. Besides returning cash to our shareholders, we invested $8 million in new products steering the third quarter. Specifically, we added two alternative products with the goal of enhancing our offerings in this segment. We now have nearly $20 million invested in new product concepts. As a result, we would expect corresponding investment gains and losses in the non-operating section of our P&L. As you are aware, Manning and Napier Group LLC distributed $31.3 million in cash to its members for the quarter, resulting in a quarterly dividend of $0.16 per share, which is consistent with the quarterly dividend that we have provided to shareholders in prior periods. And earlier this week, the Board of Directors approved distribution of $46.3 million, which includes the quarterly distribution of $31.3 million and special one-time distribution of $15 million. In conjunction with this distribution, the Board of Directors declared a dividend of $0.24 per share to Class A shareholders, consisting of a quarterly dividend of $0.16 per share and special one-time dividend of $0.08 per share. Finally, as a reminder, since our last call we have started our interim month-end assets under management reporting to keep our shareholders better informed of our results between earnings announcements. For the interim month of the quarter prior to quarter end, we will report month-end assets under management on or around the eighth business day of the following month. For quarter-end periods, we will continue to report our month-end assets under management as part of the normal earnings release. That concludes the formal remarks. I will turn the call back over to the operator, and we look forward to your questions. Thank you.

[Operator:]

(Operator Instructions) Your first question comes from the line of Michael Kim of Sandler O'Neill.

[Michael Kim:]

First, I was wondering if you could give us any color on the underlying mix of your separately managed accounts, just in terms of the length of the relationships, particularly since it seems like most of the more recent redemptions have centered in sort of newer relationships. And then also from what I understand, you managed something like $4 billion in standalone U.S. equity mandates. Is that reasonable? Just trying to triangulate sort of the risk-related to further separately managed account redemptions?

[Patrick Cunningham:]

The redemptions and the outflows continue to concentrate in the U.S. equity space. So you're correct in that observation. And it's primarily in the separate accounts where we're seeing the majority of the outflows. I can't give you a breakdown of inception dates for various accounts, that's not the information that we track internally, but it's not the information that we publicly disclose. But it's across the board. We have some relationships that started last year, I'm very happy, because we've been outperforming over the last year. Relationships that started three years ago and participated in September of 2011 are the relationships that have been challenging, and of course, with the recent performance that situation has improved.

[James Mikolaichik:]

And just a reminder, Michael, it hasn't really been, other than I'd say, last quarter, where we did lose a few relationships outright in terms of a canceled account. The relationship has stayed. It's really been a rebalancing and some turnover specifically on platforms that have caused our outflow dynamics more than purely the relationship. The relationships we've continued to maintain pretty well on the separate account side over 90% in terms to the retention rates.

[Michael Kim:]

And then just maybe to comeback to product development. I know some of the areas of focus have been income, emerging markets and alternatives. So just wondering if we could get anymore color on how you're thinking about product innovation from a strategic standpoint? And then related to that, how you think about the build versus buy decision when considering trying to scale a newer business?

[Patrick Cunningham:]

You hit upon the three areas that we have, strategic income mutual funds that are seeded. We have a Manning yield product, which is non-U.S., which we're seeding. We have international fixed income product that's being seeded. And of course, the emerging market product is approaching its second year in November, it's second year anniversary. So we continue to see products, so we are not waiting for inorganic growth in that area. We are also out looking for acquisitions that could enhance our product mix. So we're very active on both sides of that equation.

[Michael Kim:]

And then maybe just one final one for, Jim. Just wondering how you're thinking about the potential for further special dividends down the road? And then any color on sort of the level of cash. Do you feel like you need to maintain such that maybe at the end of the year, you would potentially revisit special dividends to return any excess capital to shareholders?

[James Mikolaichik:]

Sure. We look at it, Michael, every quarter with the board and we have a reasonably in-depth capital discussion both at the management level as well as with our board. And we are looking at what the right amount of capital is considering financing flexibility and risk management as well as the ability to seed new products, which you'll see we've added $15 million to $16 million since the time of establishing ourselves as a public company. Potential buyback of shares that we did earlier this year through the exchange where we have invested $7.5 million. And we got to this last quarter given where our earnings were and the tax impacts that our shareholders, both our public company as well as our private shareholders experienced in paying tax at the earnings level, rather than that at the distributed level. And we felt that doing a special dividend right now was appropriate with our $100 million of cash on the balance sheet, and no debt to speak of, and in context to what we think our near-term opportunities are for capital spending. And I think we'll look at that as we go forward on a case-by-case basis, just as we have since over the past several quarters. So nothing further to report at the moment on what do we see going forward, we'll look at it on a case-by-case basis.

[Operator:]

Your next question comes from the line of Chris Harris of Wells Fargo Securities.

[Chris Harris:]

A follow-up question in the SMA business, I kind of look at the results this quarter and actually last, there seems to be some weakness not only in the outflows, but also from a sales perspective. And I'm just wondering, given the improvement in the one-year performance that you guys have had, how are conversations, the sales conversations is going, because I got it that clients of yours that have been around for three years might be redeeming, but I think that the better near-term performance would perhaps be leading to some good conversations at the sales front. So any detail you can share, that would be great?

[Patrick Cunningham:]

We are just to remind you, when we go through periods where service is a challenge, those are periods where our sales people are busy servicing their clients. We don't have sales people who handle the accounts through relationships managers. Our sales people find their prospects, close the prospects and then service those prospects for the length of the relationship, and they are paid as the service commission for the length of the time. So if there is a natural lag, when you go through a difficult service burden, you haven't started the sale cycle on a lot of new prospects. But I will tell you we are very, very active in new business development. Our life cycle funds continue to be very strong performers. When we look at our non-U.S. equity products, both the existing products when competing against the benchmark of the All Country World Index or now with our emerging markets, we're seeing lots of interest. We've even enclosed finals with our U.S. equity products based upon our general reputation for equity management. So if there is a lag, I would expect to see that continue to improve going forward.

[James Mikolaichik:]

Chris, I'll just follow that up. I think our net inflows or rather our growth inflows are down modestly about a couple of hundred million, but we still had, I believe about $2 billion of growth inflows in separate accounts year-to-date. So it really is, from our perspective and I think what Patrick is saying, as what we're hearing and what we're seeing is not really a move away in total. It's really been some turnover on certain types of platforms and things on the outflow side that has grown a bit. In last quarter, we saw a small spike in excess of that with a few cancellations. But the inflows, we'd continue to have reasonable inflows, it's been more outflow trouble.

[Chris Harris:]

Kind of related question, can you guys maybe share with us a little an update on how the progress is going in some of your newer sales territories?

[Patrick Cunningham:]

Yes. We've added quite a few sales people over the course for the last 15 months since the beginning of 2012, really. And it's actually as you would expect there are some territories where it surpasses our expectations and there are some territories where it's slower than we would anticipate. As I have mentioned in prior calls, it takes somewhere between six to 18 months for someone to become, get up to the productivity level that we like. If we've hired someone who is more of an institutional representative, but representing our services for the largest institutions, those sales cycles take longer. And as opposed to one of our regional reps who already has relationships established within a particular city, and they're working more on middle market and find that work. That's where you can see the productivity could be much faster. So it's pretty much in line with what we expected.

[Operator:]

Your next question comes from the line of Ken Worthington of JPMorgan.

[Ken Worthington:]

Looking here about kind of activity in the 401k marketplace, is the level of increase in actions rising kind of as the DOL rules of last year's, last August, as those rules have seasoned. And I guess are you seeing more RFPs in your retirement business, I mean that you've maybe able to attribute to those DOL rule changes. And then kind of separately, but related, are you seeing more interest in kind of the collectives trust structure and maybe can you compare how the economics in the collective trust compare with the fund structure for you?

[Patrick Cunningham:]

We are seeing a lot of activity in the 401(k) space, in the participant-directed space, both in the union Taft-Hartley, which their participant-directed annuities, that's how they refer to them, and also clearly in the corporate and non-Taft-Hartley employers space. We wrote a white paper recently with some Strategic Insights, as a co-author, it's called Raising the Bar on Target Date Due Diligence. This is a paper that is direct response to the DOL regulations and rule changes. And it's really about transparency. The fund-of-funds structure, often times they did not report down to the individual holdings level. With the fund-of-funds structure they would say, okay, these are the mutual funds for the underlying investments, without giving clarity as to what the individual stock and bonds in those funds, what the composition was and what we found was that there was, in some cases, not in all cases, but in some cases there is not a lot of coordination between, those portfolio managers for the underlying funds and there is tremendous overlap of securities. So that, plus looking at active share, and whether you have someone who looks at acts like an index, just like the clause of index, or why would you pay active management fees, if they don't have higher active share. So this has been very, very well received. We've done literally dozens of speaking engagements to talk about this subject. Our Co-Director of Research was at the West Coast Conference of Pensions & Investments and speaking specifically to this, so there is a lot of activity. And we are clearly, I believe since that we've been doing this for so long and have been writing papers about it we view ourselves as thought leaders in this space as well.

[James Mikolaichik:]

And Ken, I think your other question was on the fee structure and acceptability of collectives. I think that's continued to grow. We've seen flows into our collectives and the fee structures from a management fee standpoint are obviously pretty similar. But it's really the other costs that go into it, so it's a less of a business discussion in terms of the costs around of what we're doing, but the other costs that go into some of the audit fees and the rigorous of the regulatory regime around the mutual fund that was done originally, so that people can look in the newspaper and get daily pricing. That's started too. It has started to erode and now that you have the other pricing and collectives in, there is reasonable transparency in that space. People are very accepting in the collective world and like that fee structure, it gets a lot closer to a separate account institutional type pricing.

[Ken Worthington:]

And then on other operating costs, and I am sorry if I miss this in your remark. Costs were down year-over-year. They are down exceptionally modestly sequentially even as operating revenue continues to grow. Can you maybe talk about how you're able to manage those costs, either flat to down despite kind of the ongoing growth in your business?

[James Mikolaichik:]

Ken, it's I'd say a crack or jack finance unit that's taken hold. So it's a combination of things, and we pay close attention to it knowing that we've come through a strong growth period. The company has been investing in the business consistently before the growth period started, while we've been going through the growth period and we've been adding the people and the infrastructure around that. And I think we've been reasonably prudent about spending money where we think we need to spend money. And pacing ourselves where we need to pace ourselves as we go through a transition of taking in all the great growth that we had over the past five or six years, with almost $19 billion coming into the firm and now we're at a point where we're kind of moving through that transition. We're being smart about the types of products and things that we're launching to do it in the most cost effective manner that we can and getting the track record's up and running, so that they are ready and we can watch them, and then moving them into the more expensive structures of mutual funds and collectives to really roll them out, to build the marketable capacity that the firm has.

[Ken Worthington:]

And then what would be the outlook here. Do you think you can continue to hold a line there or should we start to see that line grow with some lag to the revenue or how should we think about it going forward?

[James Mikolaichik:]

I don't have a specific outlook for you, Ken, that we're willing to share publicly, but I think we're going to do what we've done historically. And as a total operating margin standpoint, you could see it was down over the past four or five years. We've been pretty steady in the mid-40s and that other operating expense line, which we think we've got some control over, but at times we need to spend to make sure that we're ready from an infrastructure standpoint for growth that we're going to experience. Well, we have monitored and measured it, but I don't have a specific outlook for you now. I think we'll just do what we have been doing.

[Ken Worthington:]

Maybe I'll ask another way. Is there any reason to see unusual spending there in the foreseeable future, like any big projects that you know that are coming up?

[James Mikolaichik:]

Nothing out of the ordinary.

[Operator:]

Your next question comes from the line of John Dunn of Sidoti.

[John Dunn:]

You referred to the seminars that you're going to be attending and attending, wondering if you could just characterize some of the concerns in the conversations that you have in there.

[James Mikolaichik:]

We're having these seminars throughout the government shutdown threats and the funding threats, so there are lot of questions about macro economic issues, but obviously those have somewhat updated in the more recent time period, but the consistent questions had to do with the low yield environment and the potential for inflation. So we've been talking to our clients about how we are going to be addressing those issues, not just in terms of fixed income management, duration management, sector management, security management in the fixed income side, but also we have an inflation focused fund. We don't believe that we have a problem with sort of inflation generally speaking, but there are pockets of inflation, and this fund is designed to take advantage of those pockets of inflation. And it has performed quite well. And we're talking about incorporating that into our products on a going forward basis. We have a new flexible income product, which we believe treasuries right now are probably the riskiest sector of the fixed income market to be in, and this flexible income has the ability to have a zero treasuries in it. So we're talking about how to deal in a low yield environment, how to prudently and effectively get returns that are more in line with what people need in order to live.

[John Dunn:]

And then secondly, due to the improved investment performance, do you think that improvement in the separate accounts for rate can continue?

[James Mikolaichik:]

I do.

[Operator:]

Your next question comes from the line of Elizabeth Colley of Needham & Company. Elizabeth Colley - Needham & Company I was hoping that you guys could comment on asset and flows coming from new clients versus existing clients. And whether it's consistent with previous quarters?

[Patrick Cunningham:]

Jim, do you have the full data.

[James Mikolaichik:]

New accounts and contributions has been reasonably consistent with I'd say, probably but slightly larger. We're experiencing slightly better flows on the contribution side than our eight new accounts. It's not -- I don't think data that we share publicly on the specifics. But as Patrick touched on before, on the separate accounts side there is some long dated type relationship building that goes into some of the larger mandate that really move that number from one side to the other. So we've seen a few quarters, where we have got tops in new accounts, where we're seeing more. But on the whole it's a contribution and it's being leaning a little bit more towards contributions. But we have still seen some good flow in new accounts. Elizabeth Colley - Needham & Company And do you anticipate it, I mean, aside from those tops with the new accounts, do you anticipate it to remain like that going forward?

[Patrick Cunningham:]

Well, as performance improves, that being said, our representatives and we continue to add representatives, have the ability to concentrate more and more on generating new business. So I would expect that our closes would improve.

[Operator:]

Your next question comes from the line of Adam Beatty of Bank of America Merrill Lynch.

[Adam Beatty:]

Just a follow-up on the distribution, particularly some of the newer accounts maybe more qualitatively. What are you hearing in that channel? Have investor kind of objectives and concerns changed at all? Has anything changed about the sales process? Any color you could give around that would be great?

[Patrick Cunningham:]

We have had a consistent message for decades. And that message is that, and this is what's resonating with our prospects and with our clients, is that we believe team approach is the right way to manage assets. No one person can consistently make decisions over a long period of time, but if you have a process, a disciplined process, and a team that adheres to that religiously, that you can give consistent performance. Number two is, absolute returns. I think now more than ever, given the returns of the S&P since the beginning of 2000, cumulative return of less than 50% and yields as low as they are right now. Absolute returns meeting absolute targets are more important than they've ever been. And that is the basis of who we are. That's how we price our stocks. That's how we pay our analysts. It is consistent with strong absolute returns. And then in order to do that you have to be flexible. We've always been benchmark agnostic. We've never weighted stocks in our portfolios, based upon the ratings in the benchmark. We have a very high active share in the 80% to 90% range, depending upon which product that you're talking about, which means that we don't looking and act like the index at all. And those messages continue to resonate with the people that we're talking to. So I think our messages is meaningful and is powerful today as it has been in the past maybe even more or so.

[Adam Beatty:]

And then just turning to sort of the positioning of the portfolio and we've seen the stock move these days with others on Fed comments, and Fed decisions, and what have you. What do you consider to be the important macro drivers? Certainly this is not all dependent just on a taper, no taper decision in timing. What do you consider to be other important macro drivers of the performance of your portfolio?

[James Mikolaichik:]

Thankfully, the macro does not look very good, so you have to look at the micro. The macro is we have evaluations, in general are not very attractive. You have the chance of deflation coming back in the year or two. The macro is pretty -- there is not a lot of positives on the macro side, plus the debt and turmoil in the Middle-East. There's a whole host of things, that when you look at the macro level you say, there is some real challenges here. So we concentrate on the equity side. We concentrate on those companies that are going to be able to grow and which means that they are gaining market share or they are disruptive. Companies like LinkedIn, who are basically turning the recruiting industries on its head, turns in upside down, and then is being disruptive. We're looking at companies that in a slow global economic growth environment can grow much faster than the global economy, because the second of your rising tide, it's going to rise all ship. You're going to deal with macro stuff, it's going to happen. Some of it's going to be good, some is going to be bad. But if you have a good business that is growing faster than economy, you buy at a discounted fair value, and you'll be able to weather those storms better and you will ultimately be able to get good absolute returns.

[Adam Beatty:]

So it's a very company specific approach.

[Patrick Cunningham:]

Correct.

[Operator:]

Thank you. At the time, there are no further questions. Are there any closing remarks?

[Unidentified Company Representative:]

No. Thank you very much for participating. We appreciate it.

[Operator:]

Thank you. This does conclude today's teleconference. Please disconnect your lines at this time. And have a wonderful day.